A similar graph from yesterday's post starts in 1979. That's well after the so-called golden age, well into the problem economy, and well-nigh upon the Reagan solution.
This graph looks farther back in time, to the first quarter of 1952, back to near the beginning of that golden age.
Yesterday's graph showed private debt from 1979 to 1993 drifting slowly down, slowly enough that I called it roughly stable. Today's graph puts that "stable" time in context. Today you can see the strong and steady increase from 1952 to 1975. After that steady increase you see a period of choppiness. That choppiness is the "stable" time.
The strong and steady increase of private-sector debt (relative to public-sector debt) occurred during the golden age, when our economy grew comfortably. Economic growth, of course, was accompanied by the growing use of credit and by the growth of private-sector debt you can see on the graph.
It is interesting I think that the strong uptrend continued until 1975. The severe recession that occurred at that time ran from the fourth quarter of 1973 to the first quarter of '75 (based on NBER dates), so the trend didn't change until the end of that recession.
Even before the uptrend had given way to choppy stability, people were saying Keynesianism had failed. In 1971, Peter Drucker would write of Keynes and his theory:
His conclusions from this analysis proved wrong...; the economic policies which gave him his reputation and influence have failed.
The same year, New Republic would report:
The fatal flaw of the new economics, whatever its merits may be, is its inability to provide full employment and stable prices at the same time.
A quarter-century later, the analysis essentially unchanged, The Wall Street Journal recalled that Keynesianism "expired from an inflationary overheating."
In 1970 and '71 inflation in the U.S. was around 5%. Not good by any standard, but nowhere near the double-digit inflation that was to come. In hindsight, given what we know now of price trends since that time, one might ask: Were these critics prescient? Or were they perhaps only critics?
At the time, 5% inflation was outrageous and unacceptable. The critics, I think were neither prescient nor unjustified.
At any rate, we were not long into the '70s before questions were raised about Keynesian policies. And not much longer before satisfactory growth became a thing of the past. And not much longer yet before double-digit inflation arose. Choppy times.
"By 1980," Krugman writes, "the postwar system was clearly failing." Oh, it isn't his own view he expresses with those words; it is a view he attempts to undermine by showing that the '70s were no worse than the 2000s.
His argument is most unsatisfactory. It does not satisfy me to know that neither the Keynesians nor the Reaganomists can solve the economic problem. It will only satisfy me when the problem is solved.
Anyway, the choppy stability lasted some twenty years, from the mid-1970s to the mid-1990s. For those two decades they alternated, but public and private debt grew at roughly the same rate. After the double-digit thing, inflation hovered around half the 5% rate -- not as bad as it had been, but still not good. Economic growth was sustained at a "full employment" level only by redefining that level higher. And unemployment was brought down by redefining how we count the unemployed.
Reagan may have been great, but the economy was not.
So it was a significant change when private debt again took off for the sky in the 1990s. As in the golden age, this debt is a record of private-sector credit-use that worked its way through the economy and came out the other end as "remarkable performance of the U.S. economy"
Unfortunately, when private debt increases, the cumulative cost of that debt goes up. And that cost that hinders growth. It was that cost that stopped growth in the golden age and gave us twenty years of choppy stability. After twenty years some tweak worked and the economy started to grow again. But so did the cost that hinders growth. The economy was weak, because the level of private-sector debt was so high.
Growth in the 2000s was not great. As Krugman said. And the graph shows the start of another period of choppy stability then. But all the while, debt was accumulating. And one day, it was suddenly too much.
My graph shows periods of good growth as uptrend. It shows periods of so-so growth as choppy stability. And it shows periods of decline, since 2008 for example, as downtrend.
The graph displays economic performance. Why? Because we use credit for growth, and the graph shows it.
I also got quarterly GDP numbers from the BEA, so I could duplicate the second graph from yesterday's post.
(I tried getting 1947-2010 and it gave them to me. But when I opened the file in Excel I got an error: There were too many columns of data to fit the spreadsheet. Good grief!)
This graph shows more years than yesterday's graph. But it also shows quarterly data, so there are four times as many bars-per-decade as yesterday's. I had to stretch the graph out wide, so I could see the blue bars through the red.
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