The Long Boom

I found an article from the Hoover Institution: "The Ten Causes of the Reagan Boom: 1982-1997" by Martin Anderson, from 1997.

There was a boom that started in 1982? Is it in the old data, maybe? The first thing I did: I went to ALFRED and compared the current GDP data to GDP data reported in 2001. The graph shows the plotted line beginning to thicken during the 1982 recession, as the red and blue lines begin to separate. The separation is visible shortly after the 1991 recession. And by the end of the 2001 data, the difference between the red and blue lines is 22.8 index units. The change is gradual and small. In my notes I wrote "No remarkable differences."

When I sat down to write this thing I wondered why did I use 2001 data? I did the graph over, this time comparing the current GDP data to GDP data reported 30 January 1998. This is the first data vintage that shows all four quarters of 1997 -- the year Martin Anderson wrote his article.

This time the graph shows the plotted line beginning to thicken in the latter half of the 1970s. The separation is visible by the end of 1984 on my screen. And by the end of 1997 the difference between the red and blue lines is 56.4 index units. The difference on this graph is almost 2½ times the size of the difference using the data reported in 2001 -- and the bigger difference developed in three years and nine months less time!

Still, the current GDP data runs higher than either of the others. And the 2001-reported data is higher than the 1998-reported data. But Martin Anderson wouldn't have been using the 2001 data when he wrote the article in 1997. I figure he was using the lower reported values.

But even using the low values, he thought he saw a "boom" -- and other economists thought they saw a "long boom". The introductory statement below the title of Anderson's article reads:

In the United States the fifteen-year economic expansion that began in 1982, now called "the long boom" by economists, is the greatest economic boom in history--and it is still going.

I never heard of the long boom. So I looked it up. I found

The Long Boom: A Vision For The Coming Age Of Prosperity Paperback – October 1, 2000, by Peter Schwartz, Peter Leyden, and Joel Hyatt, at Amazon....
https://www.amazon.com/Long-Boom-Vision-Coming-Prosperity/dp/0738203645

And I found

"The Long Boom That Wasn’t — and What We Can Learn" by James Pethokoukis, March 2023, at AEI.
https://www.aei.org/articles/the-long-boom-that-wasnt-and-what-we-can-learn/

Felt better when I found that one!

 

Pethokoukis links to "a 1997 essay by Peter Schwartz and Peter Leyden" on the Long Boom, and says:

Broadly, the rapid productivity and economic growth of the late 1990s didn’t continue into the 21st century as they and many others of that time predicted.

Then he comes up with a list of ten things Schwartz and Leyden offer as 

 “scenario spoilers” that could “cut short the Long Boom.”

One of those ten items seems to me to be the real economic show-stopper:

“New technologies turn out to be a bust. They simply don’t bring the expected productivity increases or the big economic boosts.” 

"Nailed it," Pethokoukis says. But he lists nine more. To me most of those are consequences that arise from economic failure, like crime, like tensions between China and the US, and like the failure to deal with global climate change. People always focus on things that are problems for themselves, or things that are problems for society. But almost no one focuses on things that are problems for the economy. And those are the problems that need to be fixed... I'm thinkin monetary imbalances.

I had a similar response to Martin Anderson's list of ten. The one that struck me as close to correct was this one:

Monetary policy is next on the list. During the past fifteen years our country has been blessed with two of the best leaders the Federal Reserve System has seen: Paul Volcker and Alan Greenspan. Overall, monetary policy has been stable and predictable and inflation has been low, which has been a powerful factor in ensuring steady economic growth. That kind of sound, dependable monetary policy is essential for long-term economic prosperity.

Anderson tells what he wants from monetary policy: stability, predictability, and low inflation. I agree that "sound, dependable monetary policy is essential for long-term economic prosperity." I do not agree that Anderson captures sound policy in his paragraph. Nor do I think that Volcker and Greenspan had "sound" policy. It was good, far as it went, but it left things out.

I've said it before: Volcker and Greenspan, and bankers in general, think like bankers. They think debt is a good thing because they are in the lending business and that's how they make their money. So there is never a time when they are going to say the financial sector is too big. There is never a time when they are going to think there is just too much private debt in this economy. The bankers will never be first to argue that we must seek the level of debt that best promotes economic growth. But if they ever come to support such a plan, there will never come a time when they add and we have far too much debt already.

"Too much debt relative to the quantity of money" is a monetary imbalance. (And remember, you cannot use credit to reduce your debt.)

New technologies, no matter how good they are, turn out to be a bust when people don't have the money to spend on them. Why did the tech boom not happen until the latter 1990s? Because starting in the mid-1980s there was the Savings and Loan Crisis, which slowed the growth of debt significantly. And then in the early 1990s there was a substantial increase in the quantity of M1 money, the money that people spend. By the mid 1990s we had more money to spend, and we had less debt to hold us back. That is why the tech boom happened at that time, and why our economy was so good, at that time.