The Economics of the Boomers
America is getting older, indebtedness is rising, and economic recoveries keep taking longer. This is not a coincidence.
We’re now in the longest economic expansion in U.S. history, so it’s as good a time as any to think about how the next recession will play out.
In theory, recessions should be getting some combination of rarer and milder over time. We have better data (thanks to the work of an army of technocrats starting in the 30s), and we have better theories (every recession refutes at least one theory of recession prevention). It’s possible to imagine shifting to a regime where economic growth oscillates in a tighter range and never goes below zero.
This, of course, doesn’t happen. There are partisan theories as to why — the evil Republican theory of unrestrained speculative excess, the evil Democratic theory of excessive regulatory meddling — but the more interesting ones are politically agnostic. I’m partial to Hyman Minsky’s argument that the process goes as follows. In good times, few loans default and credit spreads narrow; investors’ return expectations are sticky, so they respond to lower spreads by levering up; at some point, what would be a minor speedbump at low leverage turns into a crisis with higher leverage, leading to a funding crisis and a…
