Are the Economic Good Times About to End?

The current economic expansion is approaching its 100th month, and though many people think its days are numbered, one man disagrees.

In a piece for the Wall Street Journal, Alan Blinder, formally the vice chairman of the Federal Reserve and currently a professor of economics and public affairs at Princeton University and a visiting fellow at the Brookings Institution, said that economic indicators suggest there is no serious threat in sight, and therefore, growth will continue for the foreseeable future.

The National Bureau of Economic Research has chronologies that date back to 1854. They show only two U.S. expansions that lasted longer than this one — which began in June 2009 — the great expansion of the 1960s that lasted for 106 months and the 120-month expansion from 1991-2001.

So what could bring down our current expansion?

The most common cause of U.S. recessions in the postwar era was monetary tightening by the Federal Reserve. This was meant to fight inflation. However, Blinder says that policy makers can engineer a “soft landing” from today’s low interest rates. This was done in 1994-95, which led to a boom. However, other instances of Federal tightening were followed by recessions.

This time, it seems unlikely that the Fed will kill the current economic expansion. There is no inflation in sight.

“Oil shocks” — sharp increases in oil prices that hurt businesses and consumers — have also caused recessions, such as in 1973 and 1979. Oil shocks are unpredictable, but Blinder writes that neither markets nor experts seem to expect one.

And finally, what about a stock market crash? Blinder put it simply: “It takes one hell of a stock-market crash to cause a recession.” Though you may be thinking about the Great Crash caused the Great Depression, but Blinder says that the stock collapse was one of many causes of the Depression and definitely not the most important one. Milton Friedman and Anna Schwartz placed more blame on the Federal Reserve and Ben Bernanke echoed that criticism while serving as a Fed governor in 2002.

Credit markets are a different story, because they contributed to the Great Depression and Great Recession. But Blinder says that there are few signs of credit markets “behaving badly.”

Blinder ended his piece by reiterating his first point: “expansions don’t die of old age—they go on until something kills them.”