The Old and the New in the U.S. Economic Expansion

Some analysts see the expansion of the 1990s as uniquely long and strong. Moreover, according to one popular view, the noninflationary boom can continue indefinitely. To shed some light on this debate, this paper compares the 1990s systematically with two previous long economic expansions, using 31 variables on real activity, inflation, productivity, wages, profits, interest rates, stock prices, foreign trade, and fiscal and monetary policies. Contrary to the popular conception, the cumulative gains in activity were greater in the 1960s and even in the 1980s than in the 1990s. This is because the recovery of 1991-1992 was unusually sluggish, and despite the fact that lately U.S. growth was indeed remarkably high and stable. Inflation was decreasing or stable, a fact which is new for the post-World War II period (but not for the longer historical perspective). Disinflation or deflation abroad contributed much to this outcome, as did the new technologies. The declines of interest rates reflected mostly reductions in inflation and the national debt. Profit margins increased strongly. Still, there are potential imbalances from overborrowing, overspending and undersaving, and rising current account deficits. Overvaluation in some parts of the stock market is probable and worrisome, but hard to evaluate.