If the toxic cocktail of a mortgage meltdown, a credit crunch, and surging oil prices should sicken the American economy enough to cause a recession—an actual shrinkage of our gross domestic product—it would be a pretty uncommon experience for many Americans. Over the past 25 years, the United States has enjoyed a marvelous stretch of almost uninterrupted economic growth.
In fact, November marks a wonderful double anniversary. The current six-year economic expansion dates from November of 2001, while the long economic boom dates from November 1982. (Both dates come from the National Bureau of Economic Research, which defines a recession as a "significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.")
Consider this: Since 1982, according to the NBER, the economy has suffered two recessions—in 1990-91 and in 2001—for a total of 16 months. By contrast, in the previous 25 years, the economy suffered six economic downturns for a painful total of 67 months. Even worse, the 1973-75 and 1981-82 recessions were two of the nastiest of the 20th century. Is it any wonder that the stock market basically went nowhere from 1966 to 1982, with such big hurdles to overcome? The Dow Jones industrial average hovered right around 1000 for more than a decade and a half. But since August 1982, when it bottomed at 776, the Dow has risen almost 1,700 percent. That ascent reflects an economy that has nearly tripled from $5.2 trillion in 1982, adjusted for inflation, to $13.9 trillion today.
So what explains this extended period of growth and prosperity? What are the ingredients that make up this winning economic recipe, ones Americans might want to keep in mind so that the long boom goes for another 25 years? What, in short, worked?
To a great extent, surprisingly, there is not a lot of debate about this, at least concerning the broad strokes of economic success. "We did something really radical," says Lawrence Lindsey, a former director of the National Economic Council for President Bush. "We decided to let markets work." Deregulation, free trade, and tax cuts were all just different facets of the same basic idea: a bit less government, a bit more markets.
Now Lindsey is Republican and an adviser to the presidential campaign of Fred Thompson. But check out what Paul London, a former senior policy adviser at Bill Clinton's Commerce Department from 1993 to 2000, has to say about the long boom: "The key to the last 25 years is the opening up of all sorts of sections of the economy to increased competition."
Indeed, you would have to venture pretty far to the political extremes to find people who want to return the top marginal tax rate to 91 percent, where it was before the Kennedy tax cuts of 1963, or who want to nationalize broad sections of the economy. Adds London, "I think the key to growth is the flexibility you get with increased competition. You want to make sure we don't have the reconstitution of something like a telephone monopoly."
Liberal economist Robert Atkinson attributes the big increase in productivity in the 1990s to a free and unfettered Web. "The decision by American government to not overregulate the Internet like the Europeans have done" was a big key to growth, he says.
One government institution that merits acknowledgment is the Federal Reserve, whose tough monetary policies helped bring down the high inflation rates that began to plague the economy in the 1960s. Former GOP vice presidential nominee Jack Kemp, who coauthored the Reagan tax cuts when he was in the House of Representatives, gives as much credit to former Fed Chairmen Paul Volcker and Alan Greenspan's "wringing inflation out of the economy" as he does to his own efforts in lowering the tax burden. Kemp also credits President Clinton for signing the North American Free Trade Agreement.
Now none of this means the American economy is problem free. Once the current housing troubles have passed, many observers will still fret about rising income inequality, competition with China, and the future multitrillion-dollar costs of Social Security and Medicare. But when it comes to dealing with these and other challenges, the more financial resources you have, the easier it will be to contend with them.