Is our economists learning?
Which eras are those of moderation, and which are those of excess volatility? What did the central bank succeed in stabilizing as a result of relying on interest rate adjustments rather than income flow adjustments?
Deficits: 1950-1980 versus 1980-2010 — which is more moderate?
Leverage: Domestic Non-financial debt/GDP 1950-1980 versus 1980-2010:
Balance on current account 1950-1980 versus balance 1980-2010:
And, more troubling, long term unemployment, which is what people really fear:
Has there been moderation in investment?
What about moderation in relations between workers and firms?
Moderation in worker pay:
How about financial stability? From 1950-1970 there were no banking crisis or currency crises in the developed world. How about since?
FDIC actions (both assistance and failures):
How about moderation in income distribution?
I believe economic historians will look back at this period not as the “Great Moderation”, but as “The Great Unravelling”. An unravelling of the social contract between workers and firms, of the government’s fiscal position, of trade balances, investment, and inequality. It was a time when the top 1% took the money and ran. It was a great slicing and dicing of the human capital of this country, resulting in less income mobility, less employment dynamism, and great fear among the eroding middle class.
As any act of robbery, it was an adjustment process rather than a sustainable form of economic management. That it occurred slowly over several decades does not make it more viable. All such unravellings eventually run their course and are complete. The nation as a whole is far poorer for it, and rather than trying to return to the status quo ante, we will need to find new social bargains and new forms of economic management to undo the damage that was done over the last thirty years.