Hey Jude. Hey Noah.

This quote from Jude Wanniski

you have to have lived in the 1950s and 1960s to have experienced a good economy.

reminds me of this quote from Noah Smith:

Thirtysomethings like myself - the leading edge of the Millennial generation - often speak with reverent nostalgia of the 1990s... Twentysomethings - the younger Millennials - are confused by this. What made the 90s so amazing?

But Noah doesn't know what made the '90s so amazing. He offers a list of amazing things that happened. But he can't come up with a story that tells what made those things possible. Noah:

The 1990s saw the explosion of information technology ... the progress of gender equality ... Race relations also seemed to be improving in the 90s ...

but also crime:

The 1980s and early 90s saw an enormous crime wave...Then, suddenly, crime dropped off a cliff. In a few short years, the murder rate dropped to levels not seen since the golden years of the early 1960s...

Funny that crime dropped after the early 1990s to levels not seen since the 1960s. Crime seems to drop when the economy is doing well. I once worked with a guy who described his time unemployed this way: "Things got so bad, I was starting to steal."

So it goes.

The 1960s were good. And the latter 1990s were pretty good. Why is that? This is what Noah was asking. What made the economy so good at those particular times?

It was a relatively low level of private sector debt that made the economy good. Debt was low enough that people were willing to take on more debt, which meant people were buying more stuff, which meant aggregate demand was running high, which meant employers were hiring, which meant the economy was good.

Unfortunately, when people are taking on more debt, the level of private sector debt does not remain low for long. When it goes up, financial costs begin to interfere with growth. The economy loses its luster.

Graph #1: Dollars of Debt per Dollar of Spending-Money in the U.S. Economy, 1916-2015

The economy was good for about 20 years (1947 to 1966) after debt fell for 15 years in the 1930s and 1940s. The economy was good for a few years (the latter 1990s) after debt fell for a few years (the early 1990s). The economy will be good again, after debt has fallen far enough this time. But things remain precarious because the level of debt remains so high.

Scott Sumner'd tell you the economy's bad because money's tight. He's right about that, but he doesn't know how to show tight money. To see tight money, look at spending-money relative to accumulated private debt -- or to total public and private debt, like the graph. Look at narrow money relative to broad money. Look at the cost of finance relative to the money available to make payments.

Super simple stuff.