There’s no denying that the latest recovery in real GDP has been subpar (Fig. 1). Real GDP has increased only 1.8% on average over the past two years (Fig. 2).
However, this average growth rate rises to 2.9% excluding total government spending. That’s closer to the old normal. Needless to say, the profits recovery has been abnormally good relative to GDP.
I welcome a shift in the composition of US GDP more toward the private sector. Not only is productivity higher there, but we actually have a better idea of what’s happening in the economy. As Tyler Cowen notes in The Great Stagnation: “We are still valuing government expenditures at cost rather than being able to measure prices set in a competitive market. … The larger the role of government, the more the published figures for GDP growth are overstating the improvements in our standard of living.”
Update: To answer the question “What spending austerity?”, I have added a chart showing real government consumption and investment, as well as federal outlays as a share of GDP.