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2000-2009: A Lost Decade?

The first decade of the new millennium has been labeled the “worst in modern times” by economists

For the majority of the past 70 years, the U.S. economy has grown at a steady pace, generating perpetually higher incomes and wealth for American households. The economic story since the start of the year 2000 has been very different. Economists have labeled the past decade the worst for the U.S. economy in modern times. The end of a long period of prosperity starting at the end of the great depression is causing economists and policymakers to fundamentally rethink the structure of the economy and our understanding of the engines that fuel economic growth and prosperity.

2000 – 2009 was, according to a wide range of data, a “lost decade” for American workers.There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.
  • Middle-income households earned less income in 2008, when adjusted for inflation, than they did in 1999 - and the number is certain sure to have declined further during 2009. This marks the first decade of falling median incomes since figures were first compiled in the 1960s.
  • The net worth of American households -- the value of their houses, retirement funds and other assets minus debts -- has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s.
  • The 1990s ended near the top of a stock market and investment bubble. The decade finished near the bottom of a severe recession.
  • Total household debt rose 117 percent from 1999 to its peak in early 2008, according to Federal Reserve data, as Americans borrowed to buy ever more expensive homes and to support consumption more generally.
The first decade of the new century was an experiment in what happens when an economy comes to rely heavily on borrowed money.

"A big part of what happened this decade was that people engaged in excessively risky behavior without realizing the risks associated," said Karen Dynan, co-director of economic studies at the Brookings Institution. "It's true not just among consumers but among regulators, financial institutions, lenders, everyone."

The Great Depression of the 1930s led to new insights about the impact a collapse of the financial system can have. The Great Inflation of the 1970s brought a rethinking of what drives inflation, such that economists now put a premium on maintaining the credibility of central banks and keeping inflation expectations in check. The lessons of the “Lost Decade” are still being formed.

The financial crisis seems to be, for all practical purposes, over, and economists are now generally expecting the job and housing markets to rebound in 2010. The task ahead for the next generation of economists is to figure out how, in a decade that began with such economic promise, things went so terribly wrong.
Published Apr 08 2010, 06:30 AM by moneycoach
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