The Congressional Budget Office recently released its updated Budget and Economic Outlook, which highlighted a key theme that recurs in many economic policy discussions: a rapid recovery is projected to begin relatively soon and to reliably deliver the economy back to full health in about four years. The problem is that this full recovery has generally been forecast to be four years away since the Great Recession began five years ago.
The figure below shows the economy’s “output gap.” The output gap is the difference between actual gross domestic product, or GDP, and potential GDP – that level of GDP that would be reached if the unemployment rate, among other things, were at non-recessionary levels. (GDP is the widest measure of the nation’s economic activity.)
The output gap for 2012 was $995 billion, or roughly 5.9 percent of potential output. CBO’s latest economic forecast shows a rapid recovery starting in late 2013 and the full output gap closing by 2017. However, in January 2008, CBO projected this full recovery would have happened by January 2012, and in January 2010, it projected full recovery by 2014. In short, full recovery seems four years away – but always has.