Robert Samuelson Redux on the Real Vs. Rhetorical Economy

For not being the Samuelson who is the economist (noted previously), this guy sure has some good economic insights (Wall Street Journal link requires subscription):

But until then, I have another theory to explain what’s been a persisting disconnect between the mood in the U.S. and the behavior: the hangover from the 1990s boom. Americans subconsciously compare everything now with what happened then; and the comparison favors the past and disparages the present. Almost nothing looks as good as it did then. America was marching toward a carefree future. The Internet was everything — and American companies dominated the Internet; the business cycle was dead or dying; interest rates and inflation were low; stock prices would rise forever; budget deficits were disappearing; unemployment was low. The powerful U.S. economy could subdue almost any threat (say, the 1997-98 Asian financial crisis).

Not coincidentally, the Michigan confidence numbers reached unprecedented levels in the late 1990s; the historic peak occurred in January 2000 at 112. It wasn’t simply that the economy did well. What was distinctive is that it did so well that it suggested Americans could take its future for granted. It was called the New Economy, which implied that the rules of the game had changed. There were explanations for all this bliss: new technologies; adoption of just-in-time inventory practices; the revival of entrepreneurship. These arguments were satisfying; they were also superficial. Alfred E. Neuman had become the chief economic guru: what, me worry?

The central fantasy was that we could dispense with uncertainty and anxiety. Now they’ve reasserted themselves with a vengeance. Americans fret about China, a housing “bubble” (remembering the stock and tech “bubbles”), huge trade and budget deficits, oil — as well as terrorism, Iraq and possible pandemics. The return of worry partly accounts for the weakness of consumer-sentiment polls. People are less confident about the future. But what then explains the strength of actual consumer spending? The answer is that Americans’ personal spending decisions depend less on their general view of the economy and more on their personal circumstances — and these haven’t shifted so dramatically.

The only things I would add relate to how business press reporting played into these feelings:

• The business press in the mid- and late-1990s, with the gleeful assistance of the administration in power at the time, fed us the fantasies Samuelson referred to about the end of the business cycle, uncertainty, and anxiety (and yes, many of us who should have known better, myself EXcluded, bought it).
• The business press has overreacted since the Internet bubble burst and the Bush Administration came into office, to the point where no economic news, no matter how good, is good enough, and not subject to all kinds of things that could go wrong down the road to bring things to a halt.
• The business press, since it got co-opted by the rest of its liberal brethren during the 1980s, has never bought into the idea that reducing marginal tax rates can and will raise government receipts, even though it has happened no fewer than three times (Kennedy tax cuts of the mid-1960s, Reagan tax cuts of the early 1980s, Bush tax cuts of 2002-2003).

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UPDATE, Nov. 15: Make that four times: Willisms reminds us that the 1920s were The Roaring 20s because of tax cuts. Sorry, Will, I wasn’t around for that one. Is that a first-hand report you’re providing?