Unclear Thoughts

According to a Washington Post article, “Aughts were a lost decade for U.S. economy, workers”, the decade just ended was the “worst for the U.S. economy in modern times.”  There are many reasons presented in the article to support the conclusion, but a few of the main reasons listed are; zero job growth, a reduction of  net worth, and decrease in median income for a majority of Americans.  The article does point out that the decade was bookended by an economic bubble and the worst recession since the great depression.   What I found more interesting then the article were the reader comments associated with the article.

Many of the comments put the blame for the problems squarely at the feet of the Bush administration and/or pronounced capitalism a failure.  Although some Bush policies might have exacerbated the problem, they certainly were not the cause of the problems.  As for the people that think capitalism is a failure, I am not sure what planet those people are from. 

Economic bubbles have the characteristic of inflating net worth.  The increase of net worth in the 1990’s, at 58%, is well above the average net worth increase of for the previous three decades, 35%.  Much of the 1990’s increase came at the end of the decade during the height of the bubble. If you ascribe the difference between the averages, the 1990’s vs. the previous thirty years, as artificial then the 1990’s really gave us an increase of about 22% in net worth.  That 22% increase is hidden in the loss of the net worth due to the collapse of the 1990’s bubble.  The 22% is lowest of the past four decades, but still not that bad.

I am not sure that capitalism could be considered a failure when our economy is still the world’s largest, our standard of living is exceptional, and most of the world’s population still wants to move here.  That is not to say our economy is trouble free.  We have a debt that is way out of hand, our country’s health care costs are out of line with the rest of the world, and as a country we spent the last decade plus putting more money into short term economic activity stimulators, such as housing, instead of long term economic stimulators, such as manufacturing.  To put it simply, we owe more than we should, we spend too much on our health care and our nation was more interested in building McMansions then manufacturing.  To be fair, this process started more than ten years ago. 

Our loss of economic focus on manufacturing was encouraged by economists telling us of the “innovation economy” and economic policy encouraging us to spend instead of save.  Unfortunately, as I documented in one of my first posts on this site, the “innovation economy” is a myth.  Since we were not saving our nation had to borrow from the rest of the world.  Combining this with the misdirection of resources caused our nation to see its manufacturing, and other, jobs to leave and never come back. 

In the end, I would not call this past decade “lost”.  I would call it more of an “obfuscated” decade.  By that I mean it is unclear how bad, or good, the decade was.  I use the old saying “nothing is as good as it looks or as bad as it seems” to describe this past decade.    What is clear, however, is that we must learn from the events of the decade and improve our economy in this next decade.