These headlines from The New York Times tell the story: From 2007 to 2009, the U.S. economy passed through its worst economic downturn since the Great Depression of the 1930s. Average incomes fell; thousands of Americans lost their jobs, their health insurance, and even their homes; and governments at all levels struggled to deal with falling tax collections colliding with increased demands for public services like unemployment benefits and health care.
In the preceding part of the book, we discussed the factors that determine long-run economic growth. Over the broad sweep of history, those factors determine the economic success of a society. Indeed, over a span of 30, 50, or 100 years, relatively small differences in the rate of economic growth can have an enormous effect on the average person's standard of living. But even though the economic “climate” (long-run economic conditions) is the ultimate determinant of living standards, changes in the economic “weather” (short-run fluctuations in economic conditions) are also important. A good long-run growth record is not much consolation to a worker who has lost her job, her health insurance, or even her home.