Our emerging understanding of the 1990s requires that we admit, to ourselves and to the world, that we were engaged in a misguided attempt to achieve growth on the cheap. Instead of curbing consumption to finance our boom, we borrowed?heavily, year after year?from abroad. We did this to fill the widening gap between what we were saving and what we were investing?a gap that opened in earnest under Ronald Reagan but grew under George H. W. Bush and Bill Clinton, and has reached new dimensions under the new President Bush. (At least during the Clinton years borrowing went to finance investment, rather than?as in the Reagan and first Bush Administrations?a national consumption binge.) Borrowing cheaply for high-return investments makes sense, of course, if all goes well: returns are more than sufficient to pay what is owed, with interest. For years we were extraordinarily lucky.

However, in the 1990s we began to test our luck, not to mention that of the countries we told to follow our example, and we continue to test that luck. We have put ourselves deep in debt, not to finance productive investments but, rather, to finance wasteful projects: in the 1980s empty office buildings; in the 1990s fiber-optic systems that will not see light for years, and software that has interfered with business productivity rather than enhancing it; today a tax cut that disproportionately benefits the rich, fueling a consumption extravaganza that, though it may have prevented a greater slowdown, has not provided the foundations for future economic growth. It is still not clear how much of the private so-called investment of the 1990s was sheer waste; but even if we consider that only a fraction of the erosion in stock values is attributable to bad investments, the figure must be in the hundreds of billions of dollars. We are still so well off that we may not suffer immediately from this diminution in our wealth, but the consequences are already becoming clear: a loss of confidence not only in markets, and especially the stock market, but in government; a suspicion that the system is rigged to be an insider’s game; a blow to America’s moral leadership abroad. The attack on American-style globalization may be driven by Luddites and protectionists?but it is fed by a perception of American hypocrisy and the unfairness of the new global regime. The Uruguay Round?which forced developing countries to open up their markets to the products of the developed countries, while leaving in place protection and subsidies for many of the goods produced by the developed world?was so unbalanced that sub-Saharan Africa, the poorest region of the world, actually ended up worse off. The interests of drug companies were put ahead of those of the millions of people suffering from AIDS and other diseases, whose lives were jeopardized when the drug companies insisted that the production of low-cost generic drugs in developing countries be shut down.

If we don’t learn from our mistakes, for which the private sector and the government both bear responsibility, we may not be so lucky next time. That said, we shouldn’t disparage the successes of the 1990s, even if we can’t be sure who is responsible for them.

Rare I read something that is so… balanced… Read the rest in The Atlantic.