http://www.nytimes.com/2009/12/28/opinion/28krugman.html
Op-Ed Columnist
The Big Zero
By PAUL KRUGMAN
Published: December 27, 2009
Maybe we knew, at some unconscious, instinctive level, that it would
be an era best forgotten. Whatever the reason, we got through the first
decade of the new millennium without ever agreeing on what to call it.
The aughts? The naughties? Whatever. (Yes, I know that strictly
speaking the millennium didn’t begin until 2001. Do we really care?)
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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. O.K.,
the headline employment number for December 2009 will be slightly
higher than that for December 1999, but only slightly. And
private-sector employment has actually declined — the first decade on
record in which that happened.It was a decade with zero economic
gains for the typical family. Actually, even at the height of the
alleged “Bush boom,” in 2007, median household income adjusted for
inflation was lower than it had been in 1999. And you know what
happened next.It was a decade of zero gains for homeowners, even
if they bought early: right now housing prices, adjusted for inflation,
are roughly back to where they were at the beginning of the decade. And
for those who bought in the decade’s middle years — when all the
serious people ridiculed warnings that housing prices made no sense,
that we were in the middle of a gigantic bubble — well, I feel your
pain. Almost a quarter of all mortgages in America, and 45 percent of
mortgages in Florida, are underwater, with owners owing more than their
houses are worth. Last and least for most Americans — but a big
deal for retirement accounts, not to mention the talking heads on
financial TV — it was a decade of zero gains for stocks, even without
taking inflation into account. Remember the excitement when the Dow
first topped 10,000, and best-selling books like “Dow 36,000” predicted
that the good times would just keep rolling? Well, that was back in
1999. Last week the market closed at 10,520.So there was a whole lot of nothing
going on in measures of economic progress or success. Funny how that
happened.For
as the decade began, there was an overwhelming sense of economic
triumphalism in America’s business and political establishments, a
belief that we — more than anyone else in the world — knew what we were
doing.Let me quote from a speech that Lawrence Summers, then
deputy Treasury secretary (and now the Obama administration’s top
economist), gave in 1999. “If you ask why the American financial system
succeeds,” he said, “at least my reading of the history would be that
there is no innovation more important than that of generally accepted
accounting principles: it means that every investor gets to see
information presented on a comparable basis; that there is discipline
on company managements in the way they report and monitor their
activities.” And he went on to declare that there is “an ongoing
process that really is what makes our capital market work and work as
stably as it does.”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.Then there are
the politicians. Even now, it’s hard to get Democrats, President Obama
included, to deliver a full-throated critique of the practices that got
us into the mess we’re in. And as for the Republicans: now that their
policies of tax cuts and deregulation have led us into an economic
quagmire, their prescription for recovery is — tax cuts and
deregulation.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.
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