Assimilate This

At NBER, Robert J. Gordon considers "the sources of the U. S. macroeconomic miracle of 1995-2000".

At FT, Kaminska's missing variable post considers causes of that miracle of economic performance. I can't get to that post now because of the password requirement at FT, but a while back I reviewed the article. I summarized Kaminska's summary:

Information technology... Our supply-side culture... The uber-low rates... and then globalization. Notice how debt is right in there, so close, yet somehow never makes the list?

I was pointing out that debt was excluded from the list of relevant factors.

I'm saying the same, today. But my main point today is to make you aware of the real fascination economists and reporters have for the economy of the late 1990s. Economic performance was really good in the late '90s. Assimilate this: Really good.

From Economic Policy Institute in Learning Lessons From the 1990s: Long-Term Growth Prospects for the U.S. by Christian E. Weller:

Sluggish economic, employment and wage growth marked the period from 1991 to 1995. In comparison, accelerated employment, productivity and wage growth, as well as faster investment and consumption growth were characteristic in the later 1990s through to the end of 2000.

One of the big stories of the 1990s was the acceleration of productivity growth in the latter part of the decade.

At Economic Policies for the 21st Century, in The Story of the 1990s Economy Joel Harris writes:

After a slight dip in 1995, GDP growth took off – averaging 4.3% a year in real terms from 1996-2000. Multi-factor productivity rose...

FactCheck.Org considers the question "Were Clinton’s policies responsible for the 1990s’ economic growth?" and decides that "He deserves part of the credit, but many factors were at work."

What factors?

...the 1993 budget bill... reappointing Alan Greenspan... Personal computers and the Internet came of age... Manufacturing companies [became] more efficient... A massive reduction in military spending... No major war... [and] Good luck also played a role. Oil prices declined...

What's *NOT* on the list? Debt.


The annual change in non-Federal debt, as a percent of GDP:

Graph #1: Change from year ago, "Debt Other Than Federal Debt" as a Percent of GDP
Click Graph for FRED Source Page

The graph shows a gentle uphill trend until the crisis of 2008. Forget the crisis. Focus on the uphill trend.

The uphill trend shows a repetitive up-and-down wiggle. Notice that the wiggle-downs almost always cross the recession bars, and that after recessions there are always wiggle-ups. That's fine.

Notice also that (crisis aside) one of the wiggles is bigger than all the rest.

The wiggle-down that begins in the mid-1980s is twice the size of any previous down. And the wiggle-up that begins in the early 1990s lasts to the end of the 1990s.

Focus on the big wiggle.

The big wiggle-up begins just before the good economic performance of the late 1990s.

The big wiggle-down created the conditions necessary for that good performance.

The large drop in debt other than Federal debt was the necessary precondition for good growth.

Assimilate that.