Peter G. Gosselin, Los Angeles Times Monday, December 27, 1999
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At the end of the 1980s, the book that dominated the best-seller list and scholarly discussion was Yale historian Paul Kennedy's pessimistic ``The Rise and Fall of the Great Powers.'' As the 1990s end, what dominates are sunny titles such as ``The Millionaire Next Door.''
The sea change in Americans' reading habits offers one way to gauge how unexpectedly well the U.S. economy performed during the decade -- and how poorly many of the country's most prominent politicians and policy thinkers did at predicting it.
``If you were really astute during the early 1990s, you could have seen we were at the dawn of a new innovation cycle,'' said Rep. Dick Armey of Texas, the House's conservative Republican majority leader. He conceded, ``I didn't.''
Neither did such pivotal figures at other points along the political spectrum as Robert B. Reich, the liberal former Clinton administration Labor secretary, and Pete Peterson, a prominent investment banker who led the centrist charge against deficit spending.
If the decade has a recurring theme, it is that of the nation blasting past limits most experts said could not be breached and continuing to grow despite the nation's refusal to adopt most major policy prescriptions for growth.
The dizzying difference in outlook between the start and finish of the 1990s suggests that the current conventional wisdom about the economy should be met with a certain measure of skepticism. Among candidates for a careful look:
-- That a New Economy is replacing the old. (Even by generous measure, the computer, software and telecommunications industries account for less than 10 percent of the nation's economic output.)
-- That the high-tech sector is immune from old-fashioned constraints such as supply and demand. (Maybe. But as anyone buried in ads for new online shopping sites this holiday season can attest, there is a case to be made that a supply glut is just around the corner.)
-- That the nation faces a looming crisis as the baby boomers retire. (If the New Economy is doing so well, why can't it afford to pay for the boomers' old age?)
American investors were much more optimistic about the chances for growth -- and much earlier than the prognosticators.
The stock market rally of the decade had its unlikely start on Jan. 17, 1991. It was the day the United States and its allies launched the Persian Gulf War. Interest rates and oil prices were at 10-year highs. The country was slipping into recession. But the Dow Jones industrial average, then around 2,500, rose and has barely stopped rising, closing Friday at a record 11,405.
Starting in 1996, Federal Reserve Chairman Alan Greenspan chose to disregard early warnings of a pickup in inflation and let the economy rip. He has been rewarded with annual growth rates twice those that most experts until recently thought possible.
But for every policy that worked, scores either failed or were exposed as unnecessary after the economy boomed without them.
Understanding why requires returning to the late 1980s and early 1990s, when many policymakers and pundits were talking about defeat even as the United States was achieving one of its greatest foreign policy victories in the collapse of the Soviet Union.
Greenspan, for example, warned that the nation faced an ``extraordinarily difficult environment'' in the early 1990s of a sort ``not seen since before World War II.'' Liberal economist Paul Krugman predicted the coming decade would be an ``age of diminished expectations.'' Writing earlier, Kennedy, the Yale historian, had begun asking, ``Can we decline as gracefully as Great Britain?''
The pessimism stemmed from many things: disappointment in the Reagan revolution and high-tech's then-unfilled promise; worries that the economic growth of the 1980s had been hollow and inequitable; lingering fears about the 1987 stock market crash and the real estate collapse in the early 1990s.