Barron’s columnist probes economic expansion history

Matthew Klein of Barron’s examines prospects for the American economic expansion to continue.

In just a few months, the current expansion could soon become the longest in American history, beating the previous record from March 1991 to March 2001.

That’s not necessarily good news. The risk of recession tends to rise over time because prolonged periods of growth encourage risky behaviors. People who have forgotten the fear of joblessness and the pain of falling asset prices are more willing to take out big debts and less willing to maintain an adequate buffer of emergency savings. Businesses used to steadily rising sales will keep investing in additional capacity until they end up with excess inventories they can’t sell. …

… Pessimists can point to plenty of reasons to worry the current expansion may not last much longer. While housing is recovering from its 2018 slump, industrial production, retail sales, and applications for unemployment benefits are all implying a slowdown. The Federal Reserve’s latest survey of senior loan officers indicates that banks have been tightening lending standards and that demand is falling across all major credit categories. …

… Fortunately, a downturn is not inevitable. In fact, there are good reasons to think the current expansion could last at least another 10 years—under the right circumstances. Somewhat perversely, the best reason for optimism is the depth of the scars of the global financial crisis. Saving rates are higher and indebtedness is lower than at any point since the mid-1990s. Americans are far less willing to boost their spending in response to rising asset prices than in the past. The job market also has plenty of room for improvement, with the employment rate of working-age adults well below its level in the 1990s.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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