America’s “Lost Decade”

Paul Krugman wrote a column in which he argued that the last decade in the US has been a waste of time, economically speaking:

But from an economic point of view, I’d suggest that we call the decade past the Big Zero. It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true.

It was a decade with basically zero job creation. …
It was a decade with zero economic gains for the typical family. …
It was a decade of zero gains for homeowners, even if they bought early …
… it was a decade of zero gains for stocks, even without taking inflation into account. …
So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system.

What percentage of all this turned out to be true? Zero.

What was truly impressive about the decade past, however, was our unwillingness, as a nation, to learn from our mistakes.

Even as the dot-com bubble deflated, credulous bankers and investors began inflating a new bubble in housing. Even after famous, admired companies like Enron and WorldCom were revealed to have been Potemkin corporations with facades built out of creative accounting, analysts and investors believed banks’ claims about their own financial strength and bought into the hype about investments they didn’t understand. Even after triggering a global economic collapse, and having to be rescued at taxpayers’ expense, bankers wasted no time going right back to the culture of giant bonuses and excessive leverage.

So let’s bid a not at all fond farewell to the Big Zero — the decade in which we achieved nothing and learned nothing. Will the next decade be better? Stay tuned. Oh, and happy New Year.

My mother sent me the column, and I wrote back the following comparison:

It’s almost like we had the same Lost Decade that the Japanese had in the 90s, but in a much more dramatic fashion. They had the Aum Shinrikyo gas attacks; we had 9/11. They had the Hanshin Earthquake, we had Katrina; both triggered a discussion about emergency preparedness and civil society. They had a bubble burst and zero growth; we had several bubbles burst and, ultimately, zero growth.

Unfortunately, it’s very clear that Japanese leaders and citizens didn’t learn very much from the experience: it took almost another decade before a major change in leadership, and their economy remains extremely weak. Not a happy comparison.

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