BRENDAN MCDERMID / REUTERS
If you’re going to worry about the economy, tumbling stocks are the least of America’s financial troubles right now.
Cascading stock prices might seem like a random crisis if you’ve been paying attention to the overall economy, which is booming. At 3.7 percent, the official unemployment rate is the lowest of this century. Job satisfaction is at its highest level in more than a decade. Small-business and consumer confidence hitrecord highs this year.
One way to predict the likelihood of a recession today is to look back at the past few downturns and evaluate whether the U.S. economy is in danger of repeating history.
Let’s start with the 1970s, when a series of oil crises contributed to a rare period of stagflation. (The portmanteau signifies a combination of stagnant growth and high inflation.) Today, conversely, oil prices are low, which helps consumers and businesses feel richer while hurting the energy industry. Despite the fact that the U.S. is now the world’s leading oil producer, America is predominantly a consumer-and-services economy, not an oil-and-exports economy. Even a long-term decline in oil prices is, therefore, unlikely to cause a serious downturn.
The recession of the early 1980s was a byproduct of the Federal Reserve’s decision to jack up interest rates to cool off rampant inflation—somewhat like a fire department flooding a house to save it from a fire. But today’s economy is neither burning nor flooding. Although the Fed is again raising rates—and there is a robust debate among monetary-policy analysts over whether, and how fast, it should do so—the baseline couldn’t be more different. Inflation is low, and—relatively speaking—so are rates…