After more than twenty years of deregulation the U.S. economy is flexible and resilient -- even in the face of short-run shocks.
Consider the supply-shortage impact of damaged oil rigs in the Gulf of Mexico, the loss of power to fuel them, and the resulting spikes in motorist gasoline prices. In the 1970s government-applied price controls and supply rationing created a dysfunctional economy that looked like a pinball machine on permanent tilt. Today, with few exceptions, price controls have been rejected. Auto and truck drivers would rather pay $4 a gallon for gas they can get, than have government mandate $2 a gallon for gas that’s not available.
In most cases market forces in the post-Reagan period still triumph over central planning. Deregulatory actions on fuel emissions and releases from the Strategic Petroleum Reserve have already helped oil and gas prices come way down after the initial Katrina spike. Congress is removing obstacles to energy production, including off-shore operations. Some policymakers are even talking about abolishing the federal gas tax -- a good idea.
Supply-side tax incentives are another anti-70s theme. Even before OPEC declared war in the 1970s, high marginal tax rates stifled entrepreneurship and growth. Today those rates are much lower, with President George W. Bush contributing by reducing the tax rate on investment variables like dividends and capital gains to only 15 percent. Whereas the 1970s had a stagflation/recession bias, today’s new economy has a growth bias that supports market-oriented resiliency and flexibility.
Then there’s price stability. The dreaded oil spikes of the 1970s merely piled on to the easy-money soft-dollar management of the Arthur Burns/G. William Miller Federal Reserve. In the ensuing decades Paul Volker and Alan Greenspan moved us back to pro-growth price stability.