Last November, Paul Krugman met Larry Summers in Toronto for a public debate. The issue: whether America faced a “lost decade” of economic stagnation, much as Japan endured through the 1990s (not that the 2000s were any great shakes). It was a very weird debate.
Both the Nobel laureate economist and the former Treasury secretary agreed for much of the night: the American economy was dead in the water. Moreover, both were quite sure it would remain in that condition, absent another massive dose of fiscal stimulus, i.e. even larger deficits. They differed only in their estimation of whether the American political system could produce it.
At more or less exactly that moment, as we now know, the American economy was stirring to life. The weeks since then have been filled with news of one indicator after another flashing green: retail sales, manufacturing shipments, employment, GDP, the works. The Dow Jones this week touched 13,000 for the first time in four years, even in the shadow of a possible war in the Middle East or currency crisis in Europe. That’s a gain of roughly 1,000 points since the lost decade debate.
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