America's Lost Decade Now In Its Eleventh Year


The second Summer of Recovery is right around the corner. Break out the suntan lotion, throw some USDA canner-grade hot dogs on the grill, and pop open a frosty can of reality about the last ten years of economic stagnation, courtesy of Calculated Risk

There are currently 130.738 million payroll jobs in the U.S. (as of March 2011). There were 130.781 million payroll jobs in January 2000. So that is over eleven years with no increase in total payroll jobs.

And the median household income in constant dollars was $49,777 in 2009. That is barely above the $49,309 in 1997, and below the $51,100 in 1998. (Census data here in Excel).

Just a reminder that many Americans have been struggling for a decade or more. The aughts were a lost decade for most Americans.

And I'd like to think every U.S. policymaker wakes up every morning and reminds themselves of the following:

There are currently 7.25 million fewer payroll jobs than before the recession started in 2007, with 13.5 million Americans currently unemployed. Another 8.4 million are working part time for economic reasons, and about 4 million more workers have left the labor force. Of those unemployed, 6.1 million have been unemployed for six months or more.

The "lost decade" refers to the stagnation of Japan's economy under a policy of supporting failing banks, propping up of zombie industries, attempting to inflate real estate prices, and maintaining artificially low interest rates. In Reason's July 2009 cover story, and in this related video, Anthony Randazzo, Michael Flynn and Adam B. Summers noted the way President Obama's stimulus was setting the stage for another period of stagnation. Here's a Reason commenter claiming, back in the good old days of Quantitative Easing Part I, that monetary stimulus was needed to prevent a lost decade. Even Paul Krugman, the doctor, noted the similarities before deciding that Japan's last decade wasn't such a bad thing after all

The largest, most brilliantly planned Keynesian stimulus since His Lordship died has now failed spectacularly. Even the financially doomed New York Times has to admit all this money printing isn't going anywhere. But it has succeeded in one area: destroying confidence in the dollar and giving a new head of steam to the decade-long bull market for gold. 

But as Calculated Risk indicates, the phenomenon of anemic growth masked by easy credit dates back much further. How long will it take until the economy reaches equilibrium or market-clearing or whatever you want to call it when massive misallocation gets reallocated? That depends how far back in the past the misallocation started. Looking at the quadrupling of house prices and the 40 percent decline in the equity portion of home ownership (the segment of current market value that is actual ownership rather than debt), I think you could make a case that the real estate bubble began before the Clinton Administration. Ditto the cost of a college education, another asset that has received vast attention from the government and has vastly inflated over more than a decade. In fact, given that American workers now compete globally against workers who make a fraction as much, who can say that seemingly flat income figure isn't higher than it would be without constant monetary expansion? 

Respectable public policy means you'll never know the answer. At any hint of deflation, the same crew of male hysterics who were wrong before and during the great credit unwind will be back with more deliciously diabolical designs. They can keep that up indefinitely; Japan's lost decade has now been going on for more than twenty years. I'm beginning to rethink my hard questions for Tad Lumpkin about his more timely than ever end-the-Fed cartoon American Dream