The longest expansion, but definitely not the greatest

This month the U.S. economy recorded a milestone: the economy has now expanded longer than ever before. Very precisely, the time since the end of the last recession dated by the National Bureau of Economic Research (June 2009) is longer than for any recorded business cycle. (The NBER, whose dating is considered the most definitive, has dated business cycles back to 1854.)

Longevity is always remarkable, a combination of skill and luck. In this case, the longevity of the expansion may have the most to do with its weakness. Using the NBER’s dates, I calculated how much the U.S. economy grew during all of the post-World War II expansions. Whether I include the time of recession or not, I find that the expansion of the 1960s was the largest, followed by the 1990s and then the 1980s. This expansion is not even close. The total real GDP growth of 24.5 percent since June 2009 pales in comparison to the 51.7 percent of the 1960s or the 42.4 percent of the 1990s. Even if this expansion lasted another year or two, it would not equal those earlier achievements.

To get a sense of why this expansion has been so weak, we can think back to the dire situation of 2009. Policymakers in most of the advanced world were throwing everything they had at the meltdown of the world financial system and the stomach-churning collapse of hitherto prosperous economies. Governments ramped up spending and cut taxes. Central banks cut interest rates and bought unheard of quantities of bonds. Banks were rescued, and the regulatory rules were rewritten.

Recovery necessarily had to take time. The damage was too great to repair quickly. However, in the first blush of the crisis, policymakers did have a great sense of urgency.

In the U.S., the big reversal came in 2011, with the dramatic confrontation between the Obama administration and the Republican-controlled House of Representatives, resulting in deficit reduction through the sequester. By that time, the headwinds from the Greek crisis and the beginnings of the European debt crisis were also slowing U.S. growth.

These two mammoth fiscal events slowed down growth in the U.S. and Europe. Both the Fed and the European Central Bank tried their best to prevent the slowdown from turning into another recession and possibly deflation. The situation in the U.S. was less dire, and growth wobbled but never died off. Europe was less fortunate.

Thanks to the few policy efforts that the Obama administration was able to get through Congress, such as extended unemployment insurance, the redoubled efforts of the Fed, and the sheer resilience of the U.S. economy, the recovery chugged on. The premature removal of fiscal stimulus prolonged the agony of a weak labor market, costing millions opportunities to work. Low wage growth became chronic, labor force participation fell, and many Americans either left the labor force or had to keep working far beyond their planned retirement age. It was an even more joyless recovery than it would have been without the unforced austerity.

With the arrival of the new administration in 2017, the economy has continued its expansion. Europe was on the upswing, providing a little bit of extra lift. The Trump administration’s deregulatory onslaught probably enhanced short-term growth a bit, at the expense of workers and the environment. The 2018 tax cuts provided a further stimulus, albeit a remarkably weak one for the enormous price tag.

The expansion has continued, at times fairly robust, at times less so. Unlike in the late 1970s or early 1990s, inflation stayed low. And this kept the expansion alive. As the late Massachusetts Institute of Technology economist Rudiger Dornbusch once said, “None of the U.S. expansions of the past 40 years died in bed of old age. Every one was murdered by the Federal Reserve.” In both the 1970s and 1990s, the Fed’s interest rate increases, aimed at controlling inflation and cooling down an overheated economy, caused the economy to tumble into recession. This time, the Fed raised rates cautiously, perhaps slowing the expansion but not causing recession.

Now we are at a longevity record. Unemployment is low, but many are still left out of the job market. Living long is great, but it is even better when accompanied by robust health. We do not have that luxury at the moment.

Evan Kraft is the economist in residence for the Economics Department at American University. He served as director of the Research Department and adviser to the governor of the Croatian National Bank.