Mind you, I am not immune to this tendency. We all like to pretend we know more than we do. But things can change in an instant. Witness the US's unexpected killing of Iranian Major General Qassem Soleimani last week, which sent roil through global markets in an instant.
As we enter 2020, tensions between the United States and Iran have escalated sharply, posing a new threat to the economic expansion. The economic expansion that began in mid-2009 is now in its 11th year (127 months) and is the longest uninterrupted economic growth in U.S. history. The previous record holders were the 1960s expansion from February 1961 to December 1969 (106 months) and the 1990s expansion from March 1991 to March 2001 (120 months).
The issue was not widely discussed by economists, investors, or others interested in the economy until 2018 and 2019, when it became clear that the old record might be broken.
This indifference in part reflects the common view at the time that the economy was still recovering from the Great Recession of 2007-2009, which was routinely and correctly recognized as the worst economic downturn since the Great Depression of the 1930s. This is a striking contrast: the current expansion is both breaking longevity records and the product of disaster.
Have we finally conquered business cycles? Some economists have promoted this idea on and off since the 1960s. Economics is portrayed as a “science” with tools advanced enough to eliminate recessions or to limit them to short, mild periods. In the 1960s, this belief was called “New Economics” and in the late 1990s, the “Great Moderation.”
I feel comfortable making this bold prediction: We will probably see another severe recession. No one knows when it will happen, how devastating it will be, or how long it will last. But we don't know enough about modern economies to allow the government to generate constant growth at “full employment” through changes in interest rates by the Federal Reserve or through changes in taxes and spending in the $4.4 trillion federal budget.
In fact, we don't even know what “full employment” means. Is the unemployment rate 3.5 percent (where it is today), or lower, or closer to 4 to 6 percent (more traditional levels)? The answer depends on how wages, employment, and inflation interact with each other. It's complicated.
We also know that past efforts to achieve sustained economic growth ultimately backfired: the economic boom of the 1960s led to double-digit inflation, which resulted in four recessions between 1969 and 1982 (in part because the Fed tried to tame inflation by raising interest rates). Similarly, the collapse of the long economic expansion and housing boom of the 1990s led to great pessimism and took nearly a decade to recover.
Is it possible that the Great Recession (peak monthly unemployment: 10%) so frightened both business owners and workers that they voluntarily suppressed wage and price growth, prolonging continued growth in the economy? This remains to be proven, but it is conceivable.
Simply put, history tells us that there are setbacks. Our economy is paradoxically both strong and fragile. It continues to grow, but growth is slowing. This makes us vulnerable to trade wars, actual wars, and other negative surprises that dampen consumer and business spending. Before we imagine a world without business cycles, we should remember that we have seen disappointing results before. Business cycles are not over yet.
Read more from the Robert Samuelson archives.
Robert J. Samuelson: Is the Business Cycle Over?
Katherine Rampell: Happy 10th anniversary of economic expansion. Don't expect an 11th.
Megan McArdle: What's the best gift Americans have received this year? A strong economy.
Henry Olsen: The Trump administration may be in shaky ground, but his economy looks solid.
Post's take: The economy is doing well, but two big clouds are looming
