Why hasn't the growth rate of real potential US GDP recovered?

Missionary Work Among Savages blog, also known as 2slugbait, wrote about whether President Reagan's 1981 tax cuts performed as advertised. I think his motivation was to determine if a similar supply-side approach could have been a better alternative to the fiscal stimulus measures implemented by Federal Reserve governor Bernanke, immediately following the 2008-2010 financial collapse. 

In other words, would a Reagan-type tax cut in 2008 have driven a stronger recovery than we experienced with Obama? The recovery during Obama's second term in office was one of the most anemic in U.S. history.

Supply-side economics maybe not so great?

2slugbaits demonstrates empirically why supply-side economics was only mildly effective. Specifically, neither of the following worked quite as well as Arthur Laffer forecasted:

1. cutting the top marginal tax rate to encourage greater labor effort 
2. supply-side structured tax cuts to encourage more personal savings 

Skepticism about David Stockman and Laffer's economic policy recommendations during the Reagan Administration is only mildly interesting to me. 

The sort of tax cuts that include middle- and lower-income wage earners, not solely high net worth "job creators" 😕😡 CAN provide a modicum of supply-side stimulus! That was apparent from 2017 to March 2020.

Something else is much more interesting to me: The long-term decline in real potential U.S. GDP.

Real Potential Gross Domestic Product

According to 2slugbaits:

"If the Reagan tax cuts actually affected the supply side of the macro economy... then we should have observed an unparalleled increase in the growth rate of real potential GDP... 

Yes, real potential GDP did grow at a pretty good clip immediately after the Reagan recession, but it quickly faded... even at its peak it was only barely above the growth rates during the Nixon, Ford, and Carter years and well below rates enjoyed during the LBJ and Clinton years."

Real potential GDP (let's refer to it as GDPPOT) is defined in the Federal Reserve Economic Data repository (FRED) as 

"The Congressional Budget Office (CBO) estimate of the output the economy would produce with a high rate of use of capital and labor resources." 

The data is adjusted to remove effects of inflation. CBO measures GDPPOT in non-seasonally adjusted billions of chained 2012 dollars. Frequency is quarterly.

Reagan era tax cuts were somewhat helpful. They resulted in temporary growth in GDPPOT as the US economy lurched out of the late 1970s oil supply shock and 1980s stagflation. We recovered beginning in about 1992.

Why was growth so lackluster then, and now?

The rate of growth of GDPPOT stalled after the dot com bubble burst in 2000. It never returned to the historical levels of the prior 50 years. That is apparent in the single chart featured in the St. Louis Federal Reserve's 'Celebrating 25 Years of FRED' blog post of April 2016, as well as 2Slugbait's graphs of the year-on-year rate of change.

Over 25 years of declining Real Potential GDP

I wanted to extend the time interval, in both directions. I went to the source, the St. Louis Federal Reserve's FRED data for historical Real Potential GDP, the GDPPOT data series.

Next, I took the rate of change of the series, but on a quarterly basis.

My assumptions are slightly different than 2Slugbait's. He used year-over-year,  seasonally adjusted rates.

I used quarterly, non-seasonally adjusted rates. My assumptions more closely correspond to those of the FRED GDPPOT data. I was curious if that would make any difference.

It didn't. Our results are substantially the same.

Where did our real potential GDP go?

I don't know. It should have recovered to at least 1990s levels during the economic expansion of 2002 to 2007. We even had a war as fiscal stimulus! Real potential GDP should have grown for some interval during the years 2012 to 2020 prior to COVID19.