Fear of Soaring

Between those two downturns, from March 1991 to March 2001, the nation enjoyed continuous economic growth, the longest peacetime expansion on record.

Researchers have offered several explanations for this calming of the economic waters.

First, the economy's structure has changed in a number of significant ways. Deregulation of airlines, telecommunications, finance and other industries has fostered more competition, which restrains prices. Globalization and the removal of many trade barriers have exposed U.S. companies to more competition from abroad, forcing them to become more efficient and holding down price increases. Businesses cut costs and boosted their efficiency through advances in computers, telecommunications and other new technologies, making it easier to profit without raising prices.

The evolution of more complex national and global financial markets during the past quarter-century has made it easier and cheaper to finance a business or home purchase, while spreading financial risk more widely.

Fed Chairman Alan Greenspan has said frequently that these developments have made the economy more flexible, enabling it to more easily absorb the kinds of shocks -- a stock market crash, foreign currency crisis or terrorist attack -- that might have caused more economic damage decades ago.

Workers today are also far less likely than they were in the 1970s to get automatic wage increases when inflation rises. Union membership has fallen to 13 percent now from 24 percent in 1979. And in the 1960s and 1970s, "it was very common" for labor contracts, particularly for the industrial unions, to include cost-of-living pay increases linked to an index of inflation, said Ron Blackwell, director of corporate affairs at the AFL-CIO.

"That's very infrequent" now, he said. Unions don't press for such clauses anymore because "inflation hasn't been a problem since the early '80s," he said.

Another major reason the economy stabilized over the past 25 years was the Fed's campaign, begun in 1979 under Chairman Paul Volcker and continued under Greenspan, to bring down inflation through use of monetary policy, actions taken to control the amount of money in the economy. When the Fed tightened policy, it raised interest rates, which limited the money circulating in the economy, slowing growth; an easing did the reverse.

Volcker tightened like an unrelenting vise, sending interest rates sky-high and, in 1981-82, causing the nation's worst recession since the Great Depression. But he succeeded in bringing down raging inflation over time and convinced the public that the Fed could and would act to prevent prices from taking off again.

This marked a critical break with previous policy, following a decade in which poor Fed policy contributed to inflation and economic turmoil, many researchers agree.