What caused the economic boom of the 1990s? Was it chance, conscious policy, or some combination of both? And when it ended, was it because of policy errors, or was it just that it the U.S. economy’s run of good luck simply ended?
Bill Nordhaus of Yale does a yeoman job of trying to reconcile the differing views on the subject in an essay in the current New York Review of Books. He considers the cases laid out in two books: The Fabulous Decade: Macroeconomic Lessons from the 1990s, by Alan S. Blinder and Janet L. Yellen; and The Roaring Nineties: A New History of the World’s Most Prosperous Decade, by Joseph E. Stiglitz.
The latter book — and its Nobel-prize winning author — comes off indiffierently, with Joe Stiglitz being lauded for the practical relevance of his views on asymmetric information (c.f., Jack Grubman & Worldcom), but also being accused by Nordhaus of somewhat thin economic analysis. Here is an example of Nordhaus on Stiglitz:
“Stiglitz occasionally stretches the interpretation of events, and his arguments are sometimes overstated or inaccurate. One example is a tendency to exaggerate the extent to which Keynesian theories are accepted doctrine.”
Instead, Nordaus find much common ground with Blinder in arguing that low inflation and low unemployment were transitory, despite being immensely important to the 1990s growth. After all, as Nordhaus writes, they “reduced inflation by between 2 and 5 percentage points between 1995 and 1999.” As a result, he writes, paraphrasing Blinder, “…by 1999, the unemployment rate was 11/2 percentage points lower than it would have been without the favorable shocks”.
Much of the piece revolves around the following table:
Using the preceding, Nordhaus concludes by arguing, alongside Stiglitz, that whatever you might think of the Clinton years and economic opportunities squandered there (or not), the current Bush administration has been even more irresponsible:
“The long-term management of our economy has fallen prey to the short-term maximization of votes in which the planning cycle of the US administration extends no further than November 2004. For all these consequences, surely, the faults lie in misguided policies of the Bush administration and not in the stars.”
Apparently, the 1990s are going to be a kind of economic Rorschach test, with economists dueling over what the period really means for free-market and more interventionist economic policies. Both schools of economists, judging by this Nordhaus/Stiglitz tussle, are finding what they want there, so it looks like we have ourselves at least one full-employment act — albeit if only for academic economists.