The three graphs in yesterday's post all consider that the Great Moderation ended in 2007, and ignore the economy's performance after that year. I've seen data analyzed that way, as a sort of benefit-of-the-doubt gesture.
I don't think it is the right approach. I think the years after 2008 demonstrate a logical conclusion to Great Moderation policies. I think the third period should not stop with 2007, but should run to the most recent data.
I present the graphs again.
Growth was best in the Golden Age, middling during the Great Inflation, and worst during the Great Moderation.
Unemployment was lowest in the first period, highest in the second, not very good in the last.
Inflation was lowest in the first period. Not quite so good in the last.
The first period was best in every category. The second period was logical conclusion to the first. The third period tried to fix the second-period problems but overlooked the first-period policies that created those problems. The post-2007 problems are the logical conclusion to the third period.
I don't know now. Maybe the Great Moderation does end in 2007, and Period Four begins in 2008.
The first-period policies that led to the second-period problems? Excessive accumulation of debt. Excessive reliance on credit. Excessive cost of finance.
By the end of the first period, that cost was dealt with by increasing the growth rate of money. But then, credit use was allowed to grow even faster. In period two we had inflation as a result.
In period three the cost was dealt with by letting credit-use grow and regularly reducing the rate of interest until it could fall no further. In period four we have depression.
No one yet sees that the solution is to increase the growth of money and *decrease* the growth of credit.
The solution is to reduce our reliance on credit. People often react negatively when I say that. As if it would be impossible to fix the economy by using less credit and more money, as we did in the Golden Age.