It’s a remarkable fact about a decade that was so economically disappointing for so many: The U.S. economy was growing for the entirety of the 2010s, making the current economic expansion the longest in American history (and still counting).
The length of the expansion is not all good news — one reason for its duration is that it has advanced so slowly. This slowness mitigates certain recession risks: It’s hard to blow up, say, a big real-estate investment bubble when the economy is sluggish. But tepid growth out of the Great Recession meant tens of millions of excess person-years of unemployment, causing misery for individual families, while the slack labor market meant slow wage growth for those who did have jobs, at least until recently.
Our stable growth — real growth consistently around 2 percent a year — has also belied the apparent political and economic instability of the decade. The decade started with the Federal Reserve undertaking a variety of extraordinary measures to coax the economy into growth. Some conservatives railed that the Fed was “printing money” in a way that would ultimately lead to massive inflation and/or the bursting of a stock-market bubble. Neither outcome materialized, and conservative critics of the Fed have largely gone quiet, probably in significant part because the president is now a Republican who favors loose money. (In fact, a handful of conservative hard-money advocates became loose-money Trump candidates to sit on the Federal Reserve Board, but the Senate hasn’t been keen to take up the president’s recommendations in that area.)
Now the critique you hear more frequently is that the Fed, despite all its extraordinary efforts in the early part of the decade, is and has been too tight. Far from sparking uncontrolled inflation, the Fed has often failed this decade to meet its 2 percent inflation target. The Fed’s excessive focus on controlling inflation has led it to neglect its other mandate, full employment. This critique is most often associated with the political left, though of course you’ve been hearing it lately from the president, and you were hearing it even in the early part of the decade from a handful of conservative economists and writers who seemed like an irrelevant web claque at the time but have now become more influential than they might have reasonably hoped. The Fed is now looking for ways to commit to allowing more inflation, at least when it has allowed too little in the past. And some officials have admitted that the Fed erred by raising rates too soon, starting in 2015.
Aside from the Fed, other seemingly major federal economic policy changes had limited effects on the macroeconomy. The effects were not zero: The Affordable Care Act likely deserves partial credit (but not most of the credit) for this decade’s unusually and pleasantly slow health-care-cost growth; and the 2017 tax-cut package seems to have modestly boosted economic growth in 2018. More dire predictions — that “economic uncertainty” would undo the economy under Obama, or that Trump’s erratic nature and fondness for trade wars would knock the economy off a growth path — proved false.
One of the stabilizing forces that kept the economy on its growth path through the decade has been under-discussed: The boom in U.S. oil and gas production. The debate over this boom (and over the hydraulic fracturing extraction techniques that have driven it) has tended to weigh industry-driven job growth against local and global environmental effects. But aside from its effects on employment in specific sectors and regions, the fracking boom helped stabilize the economy by giving the U.S. more influence over global oil prices and by bringing U.S. oil consumption and production approximately into balance.
A rising oil price still creates winners and losers in the U.S., but those winners and losers come much closer to canceling each other out than they have in decades. That means oil-price shocks no longer pose nearly as serious a recession risk to the U.S. as they used to, which in turn has given us a freer hand in foreign policy: Democrats can question the long-standing U.S.-Saudi alliance and President Trump can take a relatively mild response to Iranian efforts to disrupt oil trade in the Persian Gulf in significant part because oil prices just aren’t as important to our economic fortunes as they used to be.
In the long run, either politics or economics may undo the U.S. oil boom. Lots of U.S. oil producers are losing money; essentially, fracking has been so effective at suppressing oil prices that it tends to be unprofitable. If we return to being a net oil importer, we stand to face increased risks from turmoil in the global oil market. But a continued shift toward renewable energy, which does not trade on a global market, could further cement our economic immunity against oil-supply shocks.
And that sets up my big economic question about the next decade. You can squint at the economic situation now and tell a positive story about decreased economic risks. We don’t have to worry as much about an energy recession as we used to. The Fed has demonstrated the effectiveness of some tools to stimulate the economy in a low-interest-rate environment and is increasingly cognizant of the need to allow inflation to support the job market. The financial industry is governed by postcrisis reforms intended to prevent systemically important financial institutions from taking the kinds of risks that caused so much trouble last time. What if one of the reasons this expansion has gone on so long is that we are actually getting better at managing and mitigating macroeconomic risks?
In 2008, we learned the economy was a lot more fragile when faced with certain risks related to the banking sector than we had realized. Our sense that we had achieved a great moderation of the economy — a sense fueled by the fact that the two expansions before this very long expansion were also quite long — was shattered. But in the ensuing decade, our economy — despite all its disappointments — produced stubborn growth and proved more resilient against certain kinds of risks than partisans on either side of the aisle thought. And the persistent expansion has meant real benefits in real lives, benefits that are now showing up in public satisfaction with the economy that is at its highest since 2000.
We won’t know how prepared we are for the next financial crisis until it hits. I can’t promise the next decade will offer the moderation this one has. But if it does, we will at least be getting it off a base of low unemployment, instead of spending the decade building up to labor-market satisfaction.
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December 30, 2019 at 10:31PM
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