WE ARE now in the middle of the fourth quarter of 2012. That means that it has been five full years since the American economy first tipped into recession amid a gathering financial storm. How have we done since that time?

Oof. Well that isn't very good at all. Five years later, only America has surpassed its pre-recession output. For now, it appears to be on a steady, if disappointing, growth trajectory. Japan had the worst recession of the bunch but rebounded quickly. It has since struggled amid seismic disasters and various China troubles. Britain and the euro area have until recently followed very similar trajectories, but British output turned up nicely in the third quarter while the euro area officially re-entered recession. What should we make of this figure? Some will see secular stagnation at work. Others will blame macroeconomic policy: the zero lower bound, perhaps, or insufficiently stimulative fiscal policy. Some might point out that all of these countries are trying, simultaneously, to raise their external surplus (or get one in the first place). Whatever the story, it is a remarkable state of affairs. These economies account for over half of world output (for the moment, at least). The really distressing thing is to try and project these lines forward a bit. Japan is in recession. Britain may be out of it, but on the other hand may not. The euro zone has not grown for over a year, is almost certainly contracting faster in the fourth quarter than it did in the third and may well continue shrinking into 2013. One wonders whether the euro zone has already had the best quarterly output performance it will ever manage. And then there is America, trudging steadily upward to the beat of its own drummer. How long can the divergence between America and the rest persist? And on what terms will these lines cross again? One thing seems reasonably clear: America will not be able to rely on demand from the rest of this bunch to keep its line going up. Most of all, it will have to count on the durability of domestic demand.

Looking at America's strikingly smooth line (and it is strikingly smooth), I'm reminded of Nick Rowe's discussion of Milton Friedman's thermostat:

Everybody knows that if you press down on the gas pedal the car goes faster, other things equal, right? And everybody knows that if a car is going uphill the car goes slower, other things equal, right? But suppose you were someone who didn't know those two things. And you were a passenger in a car watching the driver trying to keep a constant speed on a hilly road. You would see the gas pedal going up and down. You would see the car going downhill and uphill. But if the driver were skilled, and the car powerful enough, you would see the speed stay constant. So, if you were simply looking at this particular "data generating process", you could easily conclude: "Look! The position of the gas pedal has no effect on the speed!"; and "Look! Whether the car is going uphill or downhill has no effect on the speed!"; and "All you guys who think that gas pedals and hills affect speed are wrong!"... If the driver is doing his job right, and correctly adjusting the gas pedal to the hills, you should find zero correlation between gas pedal and speed, and zero correlation between hills and speed. Any fluctuations in speed should be uncorrelated with anything the driver can see. They are the driver's forecast errors, because he can't see gusts of headwinds coming. And if you do find a correlation between gas pedal and speed, that correlation could go either way. A driver who over-estimates the power of his engine, or who under-estimates the effects of hills, will create a correlation between gas pedal and speed with the "wrong" sign. He presses the gas pedal down going uphill, but not enough, and the speed drops.

These economies have all faced idiosyncratic shocks, of course, but we have also seen how quickly such shocks can propagate across borders if they're allowed to. One way of understanding this chart, then, might be as a measure of the quality of each economy's "drivers". That's not exclusively what it's capturing, but that's an awful lot of it. But maybe some people look at this and conclude that it isn't about the drivers, but about the quality of the engine or the hilliness of the road. And maybe some of those people come to think that the explanation for America's deviance is that its road has been easier or that, and this is seductive, that its engine just has more horsepower. But horsepower only matters if you're pressing on the accelerator. But maybe some important people in America come to see things differently. And maybe they decide to coast a little bit...

I suppose we'll just have to come back and see how this looks in another few quarters.