Beyond the Lost Decade

The first decade of the 21st century is almost over, and for most folks, the end can't come too soon. It's been a real bummer.

But we're all still puzzled about what to call it. The previous decade was the '90s, and the next will be the teens (after those awkward 'tween years, 2010-12).

Ten years ago I dubbed this decade the aughts, using the classic nomenclature of college alumni a century ago, when the Class of 1909 would call itself "aught nine." Despite my best efforts, the moniker never caught on. On the other hand, neither has any alternative, so the decade still goes nameless.

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Little did I know in 2000 how painfully prescient my suggested name would turn out to be. Aught, a corruption of naught, stands for zero. Nothing. Nil. A big goose egg.

And that's what this decade has been -- economically and financially -- for millions of Americans. Real wages and benefits lost ground in many business sectors.

There were two distinct recessions during the decade, one in 2001 following the collapse of the technology sector, the other brought on by the deflating of the housing bubble in 2007 and the ensuing banking crisis of 2008Ð09. Total employment contracted sharply during each recession, and it's still falling today.

Stocks took a severe beating during the aughts, with major blue-chip indexes in June 2009 sitting below their levels of a decade earlier -- a rare occurrence in U.S. financial history.

The present slump will eventually end, probably later this year, and we'll end up calling it the Great Recession. But what about the next decade, the teens?

Mountain of debt. Plenty of negatives will weigh on tomorrow's economy. Consumer spending won't get a steroidal fix from cheap consumer credit and cashed-out home equity. Lending standards and capital requirements will be tougher for U.S. businesses, especially for mergers and acquisitions and for commercial real estate deals. That will dampen corporate profits and restrain stock prices.

Global competition will remain fierce in manufacturing and services, keeping a lid on U.S. wage growth.

Washington must find ways to fund soaring federal deficits -- the high cost of rescuing America's banks, home values and auto industry, even before dealing with health-care and Social Security reform.

This mountain of debt will inevitably result in higher inflation, taxes and interest rates -- and a weaker dollar. Foreign creditors will keep lending us money, but they'll demand a premium price. Lots of negatives, indeed.

Hotbeds of innovation. But there will likely be offsetting positives that are not widely recognized in grim times like these.

When the current global slump has passed, the U.S. will resume its role as the world's major exporter of high-tech capital goods and services (and food) to rapidly expanding economies in Asia and Latin America. American universities and businesses will still be hotbeds of innovation.

Remember the gloomy years of the early 1990s -- with the recession, the savings-and-loan crisis, and a crash in commercial real estate? No one foresaw the huge economic lift that would come from innovations such as the World Wide Web and wireless telecommunications.

Who knows today what world-changing technologies might boost the U.S. and global economies in the next decade and beyond? Alternative fuels and vehicles? Biotech and medical devices? Desalination of water? Retrofitting an energy-wasteful world? Probably all of these and more.

The negatives weighing on our future are mostly known. The potential positives are less obvious and highly speculative.

But prophecies of doom have always underestimated the ingenuity of humankind -- our ability to meet new challenges with unforeseen solutions.

Columnist Knight Kiplinger is editor in chief of this magazine and of The Kiplinger Letter and Kiplinger.com.