This chart is the clearest representation of the immense damage that emanated from the GFC on the US economy.
In the ~60 years following WWII, US real GDP seemed to grow at ~3% trend like clockwork.
2008 marked the end of this trend, with growth downshifting to ~2% since. 1/
The scars from such long periods of low growth and balance sheet repair ran deep, with tragic consequences.
A generation of consumers became more risk averse, business investment & productivity slumped, and a large cohort of workers witnessed real declines in nominal incomes. 2/
Most economists now seem resigned to the idea that this is the new era of slow growth is likely to continue.
The Fed's own estimate of R* now sits at 2.5%, down nearly 200 bps from its estimate in 2012. 3/
But what if, just like after WWII, a surge in productivity enhancing gov't infrastructure spending and increased risk appetite on behalf of consumers/businesses raises R*?
I don't think this is as far fetched as conventional wisdom makes it out to be. 4/
Behaviorally, exogenous crises such as what we experienced in 2020 can increase generational risk taking.
Think of the difference between someone who lived through the great depression versus someone who survived WWII. The latter was far more risk seeking than the former. 5/