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America’s Lost Decade

This article was written by in Economy. 10 comments.

Larry Summers, former economic adviser to Barack Obama and Treasury secretary under Bill Clinton’s presidency, shared his thoughts on the economy through opinion pieces in the Financial Times and Washington Post. His concern is the possibility that the United States is heading for a “lost decade” similar to Japan’s lost decade in the 1990s. This country has already experienced five years of economic growth under 1 percent annually, and that’s half way to a decade. Summers argues that while changes in policies helped prevent total economic disaster in 2008 and 2009, the economy needs more stimulation right now to prevent the history of one side of the globe from repeating on this side.

He is calling for more infrastructure spending right now. The country’s infrastructure is quickly becoming obsolete, and a stimulus package that focuses on infrastructure maintenance and replacement at a time when financing is cheap would increase the level of employment and grow the economy. When the major stimulus package was developed, it was designed to focus on “shovel-ready projects,” the same type of infrastructure improvement that Summers is calling for now. Obama warned of a lost decade in 2009, when trying to sell Congress and the American public on the first stimulus package. What happened to that first stimulus? I know that stimulus funds supported local road and bridge improvement projects near me — some of which were started years ago and are still far from completion.

It must not have been big enough or agile enough. While the stimulus most likely helped to prevent a larger economic problem, we’re still heading towards a lost decade.

Larry Summers offers these suggestions for moving forward and sparking the economy.

This is no time for fatalism or for traditional political agendas. The central irony of financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it is only resolved by increases in confidence, borrowing and lending, and spending. Unless and until this is done other policies [austerity measures, inflation protection[, no matter how apparently appealing or effective in normal times, will be futile at best…

Without the payroll tax cuts and unemployment insurance negotiated last autumn we might now be looking at the possibility of a double dip. Substantial withdrawal of fiscal stimulus at the end of 2011 would be premature. Stimulus should be continued and indeed expanded by providing the payroll tax cut to employers as well as employees.

Politicians are going to have a tough job convincing the country that more taxpayer money should go to stimulating the economy, the government should continue spending, and more federal debt is acceptable even at these low interest rates. Yet, if the economy struggles for another five years, global investors will lose interest in investing in the United States, and the country could find it difficult to survive economically against other nations’ economies.

Japan also introduced economic stimulus policies to try to recover from that country’s Lost Decade starting in 1991, but that country’s economy still hasn’t found its way. The economy in that region of the world is being fueled by other nations, where labor and parts are cheaper. When we look at Japan, China, Taiwan, and Korea, we may be looking to our own future, regardless of any new stimulus programs. This just might be a new reality, where economic growth comes from emerging nations.

Financial Times, Washington Post, Wall Street Journal

Published or updated June 16, 2011.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 10 comments… read them below or add one }

avatar 1 Anonymous

I wouldn’t be a bit surprised if we ended up like Japan and had 2 decades or more of anemic growth. The one thing we do have going for us is a higher birth rate and immigration.

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avatar 2 wylerassociate

I sadly agree that this is going to be a lost decade for america and the worst part is that too many americans are ignorant and don’t care about these issues.

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avatar 3 Anonymous

News flash: we already had a lost decade, unless you worked on Wall Street. This is the second consecutive one.

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avatar 4 skylog

you read my mind jack. when i first looked at the article, i thought we were talking about the past…not the future.

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avatar 5 Anonymous

Several points both in the article and with the comments pop to mind. The most glaring is when we say; let’s do the same things that got us into this mess to get us out – weird, at best. Second why do we need tax incentives for companies that are, for the most part, sitting on every dollar of cash they get their hands on. Finally, I know some people have had a tough time but you can’t paint the last decade with such a large brush For me it was the decade before my 60th birthday the same year I retired. It was a period of growth, savings, and preparation for the life that I’m enjoying now – a lot. When they point out that there are 35% of reitrees worried about their financial future please make note of the fact that there must be 65% who are not. No – I didn’t work on Wall Street.

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avatar 6 tbork84

Great post. Regardless of what is happening in the broad economy, everyone’s personal financial future is their own to take care of. Less growth in investments and lower interest rates simply means everyone has to be that much more engaged and proactive in saving for their future. Its nice to hear from someone who has prepared successfully for their retirement.

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avatar 7 Anonymous

I’m sorry but Larry Summers is a complete moron if he thinks we need more stimulus to get the economy going. Where did this guy learn economics? The question he needs to ask is why do these projects need stimulating in the first place? Its a pretty easy answer that any child could come up with…they need stimulating because they are not a profitable venture because if they were someone would be doing it. How about instead of having the government dictate what the taxpayers money should be spent we should let the people and companies decide what to use THEIR money on. If you want to reduce the chances of a lost decade we need to do what Ron Paul has been advocating for years and that is 1) Sound Money 2) Small gov’t size 3) End the Fed 4) reduce regulatory burdens on companies 5) reduce taxes

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avatar 8 shellye

Jack and Steve both have excellent points: We are well on our way to a second lost decade; just ask all those who worked in Silicon Valley 10 years ago. And isn’t the definition of insanity “doing the same thing over and over and expecting a different result”? I agree that this country’s infrastructure is obsolete, and needs overhauling, but until we collectively find something to produce, this economy isn’t going anywhere. We need products to sell. Infrastructure doesn’t create product; healthcare doesn’t create product; technology creates product sometimes, but Apple isn’t going to turn this economy around by itself. I really think the future of this economy is alternative energy. There are so many potential products to be made from alternative sources of energy like wind and solar that if we really embraced it fully, rather than pay lip service to it like Obama has been doing for the past few years, we’d get back on the right track. just MHO.

Flexo – please find us some great alternative energy stocks to invest in! :-)

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avatar 9 Cejay

Makes sense. Let us hope that we pull out before this truly becomes a reality.

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avatar 10 lynn

Would it be better if we allowed the economy to heal itself? It seems everyone wants easy and fast solutions.

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