It was Ronald Reagan who said that “economists are people who see something work in practice and wonder if it would work in theory.” I think this is a wonderful quote. And what is working in practice — or has been working for the last two decades — has been the U.S. economy. We have just been through the longest period ever in American history of sustained growth. Even though we may have entered a recession in the first quarter of this year, we’ve broken all records for growth over the last ten years. And if it is a recession, it will probably be a very shallow one.
Adding to that, since 1982 we have had sustained growth with only one very shallow recession that lasted three quarters of a year. Unfortunately, it was deep enough for George Bush, the father, to lose his job. We’ve never had a period like this in American history. And when you look at the stock market, in August of 1982 the Dow Jones Industrial Average stood at 777. Today it is about 10,777. It’s up by a factor of 13 in the last 18 years. Including reinvested dividends, which is something I recommend, now it is up by a factor of 20. If you invested $10,000 into the broad market in 1982, you would have $200,000 today.
Even though the economy is slowing down, a more interesting question is: “Why has the economy been so strong over the last ten years and the last two decades?” I think the answer really is a kind of a supply side revolution that began in the early
