historyThe period after the 1980s is widely regarded to be fairly stable, because interest rates and inflation were relatively less volatile compared to the previous period. Why is this the case?
I would refer you to Ben Bernanke's speech "The Great Moderation". There he gives a good summary of the three main explanations for this observation, which are:
The speech has good references you can follow should you want to know more about the subject.
Previous to the U.S. interest-rate spike in the early 1980’s, the main tool to temper economic fluctuations had been the power of the central bank (Federal Reserve) to directly set interest rates. But then debt spending became Politically Correct, so spending was used as a tool to stimulate jobs. Also, the tax code became more complex, encouraging certain types of real estate transactions. In general, there became “more levers” to tweak. But not all was placid and stable. Some industries were wiped out, or at least major ways of doing business within those industries changed dramatically. So even though the raw numbers measuring certain aggregates may seem stable, there were several recessions along the way. One common effect of recessions is job loss, which supports another criticism of the era, namely the increase in the wealth gap.
http://riskviews.wordpress.com/2009/09/19/the-interest-rate-spike-of-the-early-1980s-an-epic-dislocation-in-the-life-insurance-business/
http://www.mcoscillator.com/learning_center/kb/economic_relationships/Unemployment_and_Interest_rates/
We had a Great Moderation from 1980 to the late 2000s (and from 1945 to 1965) for demographic reasons. Specifically, in the 1980s, the Baby Boomers, a large cohort group, moved into their late 30s and early 40s (prime working years) and out of their college years (under 25). They were replaced in the latter demographic by the “Baby Busters” of Generation X.
“Moderations” occur in the U.S. economy when there is a relatively small number of college age people compared to older workers. Conversely, around 1970, there were a large number of Baby Boomers of college age that tore the country apart with campus riots (and relatively few police of the older “Silent” Generation to rein them in).
The earlier moderation took place in 1945-1965 when members of the relatively numerous World War II generation were in middle age, and the college-agers were the less-numerous “Silent” generation born during, or just before, the Great Depression of the 1930s.
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