And even this understates the change in projections, because it’s not just the future that isn’t what it used to be, but the past. In Figure 3, Greece is shown as having had a drastically overheated economy, operating far above sustainable levels, in 2007 and 2008. That is, the belief that our economic potential has fallen far below previous expectations doesn’t represent an actual economic ailment, but instead reflects policymakers’ hypochondria. After all, how is potential output calculated? In that case, you believe that the average difference between actual and potential GDP will be roughly zero over any extended period, which means that you can get an estimate of potential GDP by taking actual GDP and applying some kind of statistical method that smooths out the fluctuations.

Source: New York Times September 30, 2018 12:00 UTC