Zeta Woof

The superior job creation and income growth following the 1981-82 recession are all the more striking as they occurred against the backdrop of restrictive monetary policy. The Federal Reserve tried to beat back double-digit inflation in the early 1980s with tight money. Prime interest rates averaged 11.9%, and the three-year Treasury note rate averaged 11.2% during the recovery. By contrast, today's Fed has an expansive monetary policy with record low interest rates, a 3.2% prime rate and a 0.3% three-year Treasury note rate.

The recessions of 1981-82 and 2007-09 presented the greatest economic-policy challenges in postwar America. So what accounts for the explosion of growth after the former and not the latter? Policy plays a role.