Are you better off today than you were four years ago?  From an economic point of view, it’s a pretty simple question.  Take a look at your bank balance, your standard of living, and, perhaps, your job security, and no doubt you can come up with an answer.  It’s when you consider the implications of the question that things begin to get complicated.

Four years, of course, is the length of the election cycle for many important political offices, and the person asking you the question is probably courting your vote.  But unless you’re a relative or a political office holder yourself, how much did the person sitting in the White House or the Governor’s mansion have to do with your own economic performance?

That’s a question with no simple answer.  But as we look back four years to assess the condition of our own finances, as well as the economy as a whole, it’s useful to think of our economic evolution as the product of three, distinct forces.

Over a very short span of time, changes in our economic condition are usually dominated by so many different, individual events that it is hard to broadly characterize them as anything but random. For individuals, it’s the nuances of our businesses and jobs, which in turn are affected by the opportunities and challenges in the marketplace that make our incomes go up and down.  For cities and regions, it is the fate of large employers or important industries that make their economic fortunes surge and dip.

The data on job turnover and income fluctuation tell us that this irregular component of economic growth is significant.  As economists and statisticians track the size of the overall economic pie, they overlook the sometimes widely fluctuating fortunes of the individuals and households within it.

But when you stretch it out over a longer time, random fluctuations in our welfare tend to even out, and other important factors emerge.  One important component of growth is what economists call the business cycle.  Since the days when the first economic data were recorded, there has always been a boom and bust cycle in economic activity.  What were once called “panics” are now called recessions, but names really don’t matter.  There have always been, and probably always will be, periodic declines in our collective confidence in the future that produce contractions and economic declines like what we experienced two years ago.