Since 2000, according to Neil Irwin of the Washington Post, we have had a jobless decade for workers. Marshalling solid and widespread evidence, the writer points out that for the previous 70 years job growth had clipped along at a 20% or better rate each decade. Yet the net worth of households, including value of house, retirement funds and other assets has all declined since 2000--when adjusted for inflation. That compares with sharp gains in every previous decade since the 1950s. The following summary from Neil Irwin's superb article should be fodder for my readers.
What caused this massive downturn?
Of course, the 1990s ended at the top of a stock market and investment buble, and a recession followed.
Trillions of dollars that poured into housing investment and consumer spending distorted economic activity.
Capital was funneled into "mini-mansions in Sun Belt suburbs, many of which now sit empty.
Housing took the capital rather than industry, its machinery or business investment.
The macroeconomy was seriously mismanaged, putting the U.S. and Europe into big trouble. Nariman Behravesh, chief economist at IHS Global Insight says: The big bad thing that happened was that, in the U.S. and parts of Europe, we let housing bubbles get out of control. That came back to haunt us big time.
The debt also played out in commercial real estate and financial firms.
Irwin's summary encapsulates our troubles: The first decade of the new century was an experiment in what happens when an economy comes to rely heavily on borrowed money.
What can we learn?
The insights from this debacle won't come overnight. It'll take some solid historical and economic research and several hundred dissertations to make sense of the past few years.
Remember that we learned a great deal from the two major debacles of the past century.
The great depression, especially the research of Bernanke, taught us that without major interventions the country will be gripped by financial collapse. The lesson, therefore, was "Don't let the financial system collapse."
When you go from the Great Depression of the 1930s to the Great Inflation of the 1970s, research resulted in a rethinking of what drives inflation. The result? Economists make the credibility of central banks and keeping inflation expectations in check by managing interest rates and other processes a very high priority.
The lessons of this decade, variously called the Zero Decade or the Bubble Decade, are still being formulated. Irwin indicates that the major lesson of top governmental officials is that bank regulation shouldn't occur in a vacuum. As a result of major gains in system thinking, we've learned that monitoring individual banks will be profoundly inadequate. Instead, bank supervisors will need to understand the risks and frailties that the entire banking system creates for the economy as a whole--and manage those risks.
Irwin indicates that Fed officials have become more skeptical of routinely raising interest rates to try to manage inflation. Officials have found that the side-effects of raising interest must also be taken into account.
Obviously, the Obama administration has made the question of how to prevent a recurrence of the 2008-2009 meltdown priority in tandem with supporting growth through investments in clean energy and other areas.
The article concludes that forecasters assume the financial crisis to be over, and are now generally expecting the job market to turn around early in 2010, creating new jobs. Economists will spend years trying to figure out how, in a decade that begin with great promise, things could go so wrong. The notion that we can fix this overnight, as so many pundits argue, is utter nonsense.