The economy appears to be improving, at long last seven years into the recovery from the Great Recession. Jobs are being added at the Ronald Reagan-era average, even if the population is a quarter larger than in the 1980s. Job openings are cracking above the pre-Great Recession level. And the doughty old blunderbuss statistic, Gross Domestic Product, is inching ever closer to 3 percent.
It sure isn’t the 1980s and 1990s. Once the Reagan policy mix of sound money coupled with tax cuts was put in place in 1982, growth roared at 7 percent for a while and settled into a 4 percent rate. Twenty million new jobs emerged, which today would wipe out unemployment.
Same thing after the Republicans took Congress in 1994. Growth was at our own era’s 2-percent range since President George H. W. Bush had broken his “no new taxes” pledge in 1990. After November 1994, growth jumped up to the 4 percent level again as another 15 million jobs came into existence.
The fiscal policy of both eras, the booming 1980s and the booming 1990s, was the same: decreasing tax rates in the context of government spending made unnecessary by real-economy growth.
Likewise monetary policy. In the big runs of the 1980s and 1990s, the Federal Reserve and the Treasury managed the dollar, effectively, against classical standards. Commodities—above all gold—were low and stable in price.
Since 2008, the era of agonizingly tepid growth from a low base and an acute shortage of jobs, the fiscal-monetary policy mix has been rather the opposite of what had prevailed in the great booms of modern memory. Fat spending presaged tax increases, which came in 2013 via the income tax code and then Obamacare. The Fed dumped commodity-targeting with a vengeance and created money to such a degree that gold zoomed to $1,800 per ounce.
But that was then. Since Janet Yellen took over the Fed a year ago, the institution has found some shreds of overdue humility. Quantitative easing came to an end, and suggestions have arisen of higher interest rates. Commodities cannot be said to have been stable in the face of these developments—oil has fallen precipitously, by more than half, and gold by a third. But they can be said to have begun to be lower in price once again.
Federal spending, in turn, has lessened its displacement of the economy from its 2011 peak, while the prospects for further tax increases have flagged. President Obama’s State of the Union—the speech several weeks ago outlining major spending and tax initiatives—has had the effect of making the point clear that this gridlocked government has no chance of enacting such a plan.
