The Lost Decade – The Sequel

June 15, 2011

During the 1990s Japan entered what has come to be called the lost decade. After their housing bubble burst, the country faced years of stagnant economic growth and a decline in national confidence.  Unemployment rose, the value of the currency dropped and trade with the world diminished. In the meantime, China pushed Japan off the center stage of international economic growth, leaving Japan as Number 2 in Asia.

Sound familiar? Well there are many in the world of economics and finance who believe that we are in the early stages of our own lost decade. With the meltdown of 2008, the subsequent recession and the continued failure of the economy to rebound by adding significant growth and jobs, the view among experts is that we are becoming the 21st century version of Japan.

If this analysis is correct, the United States is not going to get out of this economic slowdown any time soon; rather we will have to adjust to years and years of anemic growth, high unemployment and growing middle class anxiety.

Usually a recession is followed by a period of vibrant economic growth and personal prosperity, but not this time around. The recession may be technically over, but there is no vibrant economic growth or personal prosperity; in fact there is growing consumer dismay alongside steady state unemployment.

What is also distressing about the lost decade analysis is that under such circumstance international political and dipomatic influence begins to wane as well. Other countries that are doing much better begin to play a larger role in the world arena. Watch out for China, and don’t forget about Brazil, Korea, and Russia.

Few Americans are willing to accept the lost decade viewpoint, as they think better times are around the corner and that we will innovate ourselves out of this downturn. But as economic numbers continue to be dismal, there will be a growing sense that maybe we are not just in a temporary funk, but rather stuck in a long, long period of stagnation. Not a reassuring vision of the future.