The Great Moderation

From Noah Smith: Big Economic Discovery! Booms Might Cause Busts

But in recent times, thanks to effective fiscal and fed policy and America’s economic exceptionalism, ‘booms’ have become increasingly prolonged and ‘busts’ very brief. The Great Moderation that began in 1982 has become a ‘greater moderation’ as inflation remains tame, economic growth steady, the dollar strong, and innovation, exports, consumer spending, and profits & earnings rising uninterrupted.

Here’s a chart showing how recessions have become rarer and briefer since the early 80’s:

It’s not that we need to be able to prevent bubbles or predict them – that’s asking too much – but instead we need the tools to keep crisis and downturns as brief and contained as possible – a skill that policy makers are surprisingly adept at. Bernanke and Geithner, who I dubbed ‘the competent duo’, saved the day, allowing Obama to unscrupulously take credit for the strong recovery. The liberal doom and gloom media always focuses on failures, so most people just assume that everyone in the fed or in Washington is inept when in fact there are competent people in command, again and again rising to the occasion when everyone else expects the worst; it’s just that no one in the media gives them credit. Failure and crisis sells subscriptions and gets clicks, not success.