Paul Smalera: Lost Decade? We Just Had One
" ‘Jesus,' he said to himself. ‘Drunk for ten years.'"—F. Scott Fitzgerald,"The Lost Decade"
For months, the"lost decade" meme has been wending its way through blog posts, economics journals, cable news shows, and newspaper think pieces until, like a minor leaguer on a hot streak, it finally reached The Show, the White House, where President Barack Obama explained its provenance during his professorial first press conference:
"If you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of. We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough, and as a consequence they suffered what was called the ‘lost decade' where essentially for the entire '90s they did not see any significant economic growth."
Only in 1999, when Japan finally created a"bad bank" to handle toxic debt from its mismanaged banking system, was recovery able to take root, the thinking goes.
The phrase"lost decade" has a meaning of parallel gloom for stock watchers. As the Wall Street Journal reported in July 2008,"Adjusted for inflation and dividends, the return on the S&P 500 was negative for the decade that ended on June 3." Things have only gotten worse since June—the Dow is adrift at 1997 levels, and GDP contracted by 6.2 percent in the last quarter of 2008. Stock-market indexes, vehicles that have long been touted as providing safe growth for retirement accounts, have actually had worse performance for investors this decade than simple I-class savings bonds.
It might sound like mere semantics, but granted hindsight, the"lost decade" already happened: It was the"last decade." Yet we talk as if we're on the cusp of the precipice, not over it. Given that the talk in political and economic circles still carries that dissonance, isn't it worth stopping to ask: What the hell did just happen?...