Underneath all the cyclical noise — the booms and busts, the market crashes and rallies — there's a steady underlying trend: productivity growth. Over the long term, this is what actually makes economies richer.

Productivity is simply output per hour worked. When a farmer can harvest more wheat per hour due to better equipment, that's productivity growth. When a programmer can deploy code faster due to better tools, that's productivity growth. When AI lets one analyst do the work of five, that's productivity growth.

Historically, productivity grows about 1.5-2.5% per year in developed economies. This is the 'real' growth of the economy — not illusory growth from credit expansion, but actual improvement in what we can produce.

Here's why this matters for investors: Everything else is cycles around this trend. Booms take us above trend, busts take us below, but we eventually return to it. If you're analyzing whether the economy is 'overheated' or 'depressed,' you're really asking: Are we above or below the productivity trend?

The biggest mistake beginners make is confusing cyclical moves with permanent changes. In 2021, people thought 'work from anywhere' meant permanent 20% annual house price increases. They confused a cyclical credit boom with a permanent trend change. In 2009, people thought 'this is the end' and missed the recovery. The productivity trend continued in both cases.