“The story has been all about crime and punishment when it should have been about boom and bust. The boom did not begin with the rise of home prices, as is usually asserted. It began instead with the suppression of double-digit inflation in the early 1980s, an event that unleashed a quarter-century of what seemed to be steady and dependable prosperity… Unemployment peaked at 7.8 percent. As inflation fell, interest rates followed. The stock market soared. From 1979 to 1999, stock values rose 14-fold. Housing prices climbed… Enriched, Americans borrowed and spent more. But what started as a justifiable response to good economic news, slowly evolved into corrupting overconfidence, the catalyst for the reckless borrowing, overspending, financial speculation, and regulatory lapses that caused the bust.
But the story is also more disturbing in that it batters our faith that modern economics can protect us against great instability and insecurity. The financial panic and subsequent Great Recession have demonstrated that the advances in economic management and financial understanding that supposedly protected us from violent business cycles, were oversold, exposing us to larger economic reversals than we thought possible.
– Robert J. Samuelson, “Rethinking the Great Depression,”
The Wilson Quarterly
, Winter 2011