“Economic expansions don’t die of old age; they are murdered” usually by domestic or geopolitical exogenous shocks
– by New Deal democrat
There is an old saying that “economic expansions don’t die of old age. They are murdered.”
I have been writing about the economy, and examining all sorts of leading, coincident, and lagging indicators, for 20 years; and the longer time goes on, the truer that saying appears.
My most recent examination has been based on the data showing that despite the blows inflicted on the economy by the likes of Tariff-palooza!, it just keeps powering along. It simply takes an awful lot of hits to sink a US expansion.
Which got me thinking about all the past recessions I have experienced, and that fact that, going back over 50 years now, every single one of them featured important and sometimes decisive shocks, usually geopolitical or domestic political shocks. Let’s take a brief look:
1974 – Arab oil embargo, brought about by the 1973 Yom Kippur War.
1979 – Iranian Revolution brings about another doubling in the price of oil
1981 – Paul Volcker raises interest rates from 9% to 19% to deal with the inflationary fallout from the 1979 stagflation.
1991 – Another oil shock brought about by Saddam Hussein’s invasion of Kuwait
2001 – a combination of the “China shock” as manufacturing jobs flee the US for China, the 9/11 terrorist attacks, and the bursting of the internet bubble
2008 – As well as the bursting of the housing and mortgage lending bubble, there was another oil shock, as gas prices rise from $2.25 in early 2005 to $4.10 in mid-2008.
2020 – COVID
The above list isn’t to downplay cyclical events, but rather that an economy that was already vulnerable was finally knocked over by some exogenous event; or at least the exogenous event contributed. Even those recessions with the most “cyclical” or financial components – 1981, 2001, and 2008 – had at least some deliberate decision-making involvement, whether Volcker’s deliberate choice to bring about a recession in order to kill inflation, or the accession of China to regular trading status, in combination with terrorist attacks, or Greenspan’s enabling of reckless lending practices as well as the first time oil went over $100/barrel.
We entered this year with a weak if expanding economy. The most recent QCEW – an actual *census* of US employment rather than the monthly estimate – suggests that in all of 2024 only about 0.8%, or 1.25 million, new jobs were added, less than the likely population growth last year. And this year we have already had 2 exogenous political shocks: Tariff-palooza!, and now the war with Iran. The GOP tax bill is set to be a 3rd major political shock. Will those blows be enough to sink the economy? We’ll find out soon enough.
I also wonder about the Fiscal shock, much of which won’t manifest itself until the Fall, of Trump-Vought-Musk DOGE cuts to the Government, the attack on universities and their foreign students, and shock to the labor market that Trump-Miller-Noem-Homan’s plan to arrest 3,000 immigrants, mostly workers, a day, will have in the 3rd and 4th quarters.
@Sherpartick,
Add to that, the impact of rural hospital shut downs in the wake of gutting of Medicaid.
I fixed it here, but on the Bonddad Blog site, it still says that Saddam invaded Iraq. I think you mean Saddam invaded Kuwait. I don’t see a comment thread over at Bonddad Blog where I can point this out.
Very good summary of events leading to economic issues. I also look at the net financial position of the domestic private sector for long term trends. In a nutshell, the net financial position of the private sector is the government debt minus the trade deficit. Government debt is treasury securities including savings bonds; both are assets on private sector balance sheets. When the government debt to GDP ratio drops below 40% the economy tends to suffer. This occurred during the decades of 1930’s, 1970’s, and 2000’s. The ratio in the 2000’s was higher, but starting around 1980 the U.S. started running a significant trade deficit and Social Security started running a significant surplus. Both of these subtract from the domestic financial position resulting in the ratio falling below 40%. Those 3 decades all had poor economic growth; the DJIA was flat for those time periods. The periods in between (when the ratio was >40%) the DOW saw a 10x increase!
Going forward the government is paying down the Social Security trust fund over the next several years. This is basically a $2 trillion stimulus injection. While other government spending cuts will cause micro economic problems, I don’t think they will be large enough to offset the macroeconomic impact of SS spending. All bets are off after the Trust Fund is gone.
My biggest concern is the distribution of the private sector financial wealth. Trillions of dollars in the hands of a small number of people allows them to buy political influence and control (manipulate) markets (housing, commodities, stock, labor etc.).