I am starting to re-read Ed Leamer’s textbook, Macroeconomic Patterns and Stories. Very early, he presents a graph of real GDP from 1955 to 2005 on a log scale, showing that it grows at a trend rate of 3 percent, with hardly any years where it grows faster than 6 percent or slower than 0 percent.

In the 1980’s, folks like Nelson and Plosser argued that such a graph was really deceptive. They argued instead that real GDP behaved statistically more like a random walk with drift.

It makes a huge difference today which model you believe. If there truly is a trend, then one believes in mean reversion. Given how much real GDP fell, that implies at some point that we will see very rapid real GDP growth in the future, probably the fastest on record.

On the other hand, if real GDP is a random walk with drift, then it just is where it is. Going forward, it does not know that it has to “make up” for any subpar growth. It is just going to try to grow at the trend rate of 3 percent (the “drift”), not get back to the trend level.

I worry that the multi-decade time-series properties of GDP could be determined in part by mechanical factors related to how the Commerce Department undertakes calculations, particularly the inflation adjustment. I think that if I were looking at trend vs. random walk, I would be more inclined to focus on payroll employment as my indicator of economic activity, because you don’t have to worry about inflation adjustment.

My opinion, which is just a gut feeling that I cannot justify, is that employment is more of a trend than a random walk. That is, I continue to expect that employment growth will be much faster than normal at some point. So my gut tells me to dismiss stories of permanent labor market dislocation, such as the health insurance hurdle.