After putting together the formula for the EPI, one of the very first things we did was to score every year in U.S. history, stretching as far back as 1790, and then graph the result. It was important to be sure that the EPI (EPI) is able to trace major historical events and recessions.

of the three major findings of our research are:

1. The EPI tracks the major events in the U.S. history, from wars and stagflation to booms and periods of prosperity. Out of all economic indexes, only the EPI can accurately compare the performance of the U.S. economy across time.
2. The EPI catches almost all official U.S. recessions, from the Great Depression to the dot-com bubble, falling substantially during these periods. Furthermore, the EPI is the only index that allows comparing the severity of recessions in a transparent way.
3. The EPI reflects the same economic behavior as the stock markets. Since the EPI reflects the fundamentals of the economy just like the financial markets do, it follows that, the dynamics of the EPI should rise and fall in tandem with the market.

After graphing the EPI scores, we assigned the letter scores to easily compare the performance of the economy across time periods. For convenience’s sake, we also circled the dramatic rises or falls to underscore how accurately the EPI reflects even outlier events. The results are as follows:

 

Since most people are more familiar with U.S. history after World War I than before it, let’s focus on that period of time.

History remembers the Roaring Twenties as a time of great prosperity and optimism. It is no surprise, then, that the EPI reflects a superior economy during these times. History also records the Great Depression as the worst economic period in the U.S., beginning at the end of 1929. Right on cue, the EPI drops dramatically. Then, too, the 1950s and 60s are remembered as the golden era of American capitalism. When we look at the index for those two decades, we see a consistently high economic score.

Our research shows that this simple Index is extremely powerful in reflecting the performance economy throughout U.S. history. The EPI is able to catch all major historic events, like the War of 1812, the Civil War, the World War I, the Great Depression, the World War II, as well as almost all economic panics and conflicts.

The EPI and the U.S. Economy

In this section, we examine the U.S. economic history using the EPI as a tool to help explain overall economic performance. Economists and historians generally agree that the U.S. has experienced a number of historical periods that include both favorable and unfavorable economic conditions. Each period is characterized by a variety of sociological changes, domestic political upheaval, technological innovation, and exogenous shocks such as wars.

Beginning with 1790, we have divided the graph of the EPI into fourteen general economic periods (in close agreement with most historians’ division of U.S. history) so that we can take a better look at how closely the EPI reflects the events during each period that would influence the economy’s health. Following a quick explanation of those events, we provide a brief EPI analysis and rank each period’s performance.[1]

	Period	Years			Average Score	Grade
1	The Gilded Age	1866-1889	Deflation, moderate unemployment, budget surpluses and rapid GDP growth	Reconstruction, the “Wild West,” Industrial Revolution, beginning of Labor Movement, rapid expansion of the Railroads, Sherman Antitrust Act	97.5	A
2	Post War Prosperity	1948-1967	Very low rates of inflation, unemployment and deficits combined with relatively high GDP growth	The beginning of the Cold War; the Korean Conflict, the Beginning of the Vietnam War, peak of Labor Movement	96.9	A
3	The Roaring 20’s	1921-1929	Low inflation, unemployment and budget deficits, high rate of GDP growth	Mellon Tax Cuts, rapid growth of automobiles and telephones	96.8	A
4	The Progressive Era (excluding WWI)	1890-1913	Low inflation and budget deficits, moderate unemployment and GDP growth until WWI	Federal Reserve Act of 1913, introduction of the Income Tax, Mass Production	96.4	A
5	The Mid Industrial Revolution	1816-1860	Deflation, moderate (estimated) unemployment, budget surpluses, rapid GDP growth	Panic of 1837, beginning of the Industrial Revolution, Manifest Destiny	94.1	B+
6	The Founding Years	1790-1811	Low inflation, average unemployment, budget surpluses, moderate growth in GDP	Establishment of basic government institutions, Federalist vs. Jeffersonian debates, large agricultural economy, small industry.	92.7	B
7	Reagan Revolution and the New Economy	1982-2000	Low inflation, falling unemployment, moderate to high budget deficits and higher rates of growth in GDP	Reagan Revolution, Escalation and end of the Cold War, Gulf War, NAFTA, rise of the Internet, Tech Bubble	90.9	B-
8	The Post Millennium Period: 2000-the present	2001-present	Relatively low inflation and unemployment, moderate budget deficits and slowing growth in GDP	9/11 Terrorist Attacks, Iraqi and Afghan Wars, Housing Bubble, Banking Crisis, The Great Recession	88.3	C+
9	1st Modern Stagnation	1968-1981	Worsening economic performance marked by high rates of inflation, increasing unemployment, moderate budget deficits and slower growth in GDP	The continuation of the Cold War, Vietnam War, the Great Society, Medicare, Medicaid, Watergate Scandal, Stagflation	88.0	C
10	The War of 1812	1812-1815	A doubling of the inflation rate, (assumed) higher unemployment, significant budget deficits, lower growth in GDP	Agricultural blockade, Burning of Washington, Capture of Detroit, Battle of New Orleans.	83.4	C
11	World War II and War Decommission	1941-1947	Moderate inflation, rapidly falling and low unemployment, unprecedented budget deficits, rapid GDP growth	World War II, Nuclear Fission and the “atom bomb”	81.8	C-
12	World War I and its aftermath	1914-1920	High budget deficits and increasing inflation	Mass Production, World War I	81.2	C-
12	The Great Depression	1930-1940	Deflation and low inflation, very high unemployment, moderate budget deficits, two contractions in GDP followed by growth	The New Deal, introduction of Social Security, broad based rise in business regulation	77.4	D+
14	The American Civil War	1861-1865	High inflation, low estimated unemployment, large budget deficits and moderate GDP growth	Civil War, Emancipation Proclamation	75.3	D

 

[1] Statistics from 1790 are generally available, With the exception of unemployment data, which is available starting at 1869, and the average unemployment of 6.7% was used for years before 1869.. Most historical statistical data for inflation, unemployment, budget deficits and change in GDP was taken from Historical Statistics of the United States: Millennial Edition (2006), edited by Richard Sutch, Susan B. Carter, etc. Cambridge University Press. A complete discussion of data sources can be found in the Appendix B.