“The End of Normal”?

That´s the title of a recently published book by James K. Galbraith. The subtitle reads: “The Great Crisis and the future of growth”.

You can already see what he means by the “End of Normal”, that being an end to the era of continued (and “easy”) growth.

It´s a good read and full of facts. Sometimes I even got a good laugh from his interpretation of those facts.

“To put it most briefly, these doctrines (that emerged from Cambridge, Mass and Chicago, Il) introduced the concept of economic growth and succeeded, over several decades, to condition most Americans to the belief that growth was not only desirable but also normal, perpetual, and expected…We lived in a culture of growth; to question it was, well, countercultural. The role of government was to facilitate and promote growth, and perhaps moderate the cycles that might, from time to time, be superimposed over the underlying trend…The trend was identified as potential output, the long term trend at high employment, which thus became the standard…”.

But growth does not start in the post war period, as Galbraith posits. It had been going on for more than 100 years, mostly (exception being the early 1930s) on a continued basis.

Growth theory didn´t start out as an “anticommunist propaganda campaign”. It was an attempt to understand a rather recent worldwide phenomenon that only began in the early 19th century, after millennia of human history.

The chart below provides a ‘broad brush’. From 1880 to 1929, real growth averaged 3.4% year on year. Volatility was high (6.6). Skipping the ‘exceptional’ 1930s and the war years, from 1950 to 1982 real growth also averaged 3.4%, but with less than half the early growth volatility (3.1). From 1983 to 2007, real growth averaged an almost identical 3.3% and volatility was again halved (1.1). For the last seven years, growth has averaged a meagre 1.1% and volatility has doubled (2.1).


It appears that the first oil shock of 1973 permanently reduced the level of “potential” output somewhat, although the rate of growth of real output remained intact.

More recently the “Great Crisis” has resulted in a downgrade of both output and it´s growth rate (even if you exclude 2008-09 from the calculation, real output growth has averaged only 2.2% over the last four years). Is that necessarily the “End of Normal” and beginning of the “New Normal” (or secular stagnation)? In how many ways has economic policy, in particular monetary policy, failed?

The story of the “Great Depression”, which must have felt like the “End of the World” at the time, gives out hope. And don´t think a new “war” is required. It isn´t!


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