The Longest Expansion

As of today, the current economic expansion is the longest in US history. Ten years and a day. But just because it's the longest doesn't mean it's the best. The expansions of the 1960s, 1980s, and 1990s, all beat it out both in terms of the pace of growth as well as the total growth during the cycle, whether you measure from peak to peak or cycle bottom to the top.

What's more, all the prior long booms had something in common: major shifts toward freer markets in at least some area of public policy. In the 1960s it was the Kennedy tax cut, passed posthumously in 1964, which reduced income tax rates roughly 20% across the board, including a cut in the top rate to 70% from 91%. In the 1980s, the federal government again cut income tax rates across the board, with the top rate on the highest earners dropping to a low of 28%. In the 1990s, the capital gains tax was slashed both directly and indirectly (via lower inflation), while policymakers held down government spending, increased free trade with foreign economies, and reformed welfare.

By contrast, the current expansion happened in spite of tax hikes, more regulation and the aging Baby Boomer demographic headwinds. No wonder it was slow, what we called a Plow Horse.

That doesn't mean we haven't grown, or that we won't continue to do so. Consider the litany of horror stories analysts and investors have obsessed over during the past ten years, dating back to the oft predicted "double-dip" recession. There were fears over foreclosures, defaults on muni debt, commercial real estate, the banking crisis in Cyprus, a China slowdown (multiple times!), Greece leaving the Euro, the Fiscal Cliff, Brexit, Obamacare, hyperinflation from Quantitative Easing, a recession from Quantitative Tightening,....and on and on and on. Regardless of whether your personal politics were conservative or liberal, the bombardment was enough to send many headed for financial cover.

The story that should have held the spotlight these past ten years is entrepreneurs overcoming political obstacles to keep the US economy growing. But that doesn't make for a sexy headline, so don't expect the financial media to give it much heed.