On Monday, the S&P 500 (an index tracking stock prices) closed above 1,000. There's nothing magical about 1,000 itself; it's just a conveniently round number and thus easy to remember. One useful application of the index is to compare its level today to prior points in time. The S&P 500 first crossed 1,000 back in 1998. In other words, its value today is equivalent to its value 11 1/2 years ago. For colorful chart, see Calculated Risk.
I would propose that is both bad news and good news. The bad news is that it means, economically speaking, we've essentially wasted the past 11 plus years. The good news, though, is that the wasteful decisions were made by us, which means that going forward, we have the power to make different decisions.
In other words, our 'lost decade' isn't necessarily ahead of us, yet to be suffered. If we react responsibly and appropriately, then we've already survived the worst of it. (Except, of course, those who didn't; which is always the fierce urgency of now.)
It's perhaps worth asking why this indicator is at the value it first breached in 1998. Other economic measures have risen dramatically. For example, US GDP (essentially, the sum of all the stuff we make) has increased by more than half, from around $9 trillion in '98 to around $14 trillion in '08. It could be that the S&P 500 is flawed, or it could be that stocks in general make poor measures of the economy.
However, the most likely explanation is that the problem is not on the revenue side, on how much we make, but on the expense side, the uses of that GDP. And that's the Bad News. We have made very poor decisions about how to spend our money over the past decade. Trillions have been wasted on defense and security outlays that neither better defend us nor render us more secure. Trillions have been wasted in inefficiencies in providing health insurance. Trillions have been wasted providing financial leverage when (excessive) leverage itself was one of the major destabilizing factors of the past decade. No doubt you can list countless of your own misallocation of resources, from the drug war to agricultural subsidies to Medicare 'modernization'. People have literally been deprived of food, shelter, medical care, and other basic necessities because we spent the money elsewhere instead.
But, that's also the Good News. We (loosely speaking) chose to spend the money that way. We weren't hit by an asteroid. No country has declared war against us. There's been no flood of Biblical proportions. Yellowstone didn't erupt. We chose to put our resources in the sands of Iraq, the mountains of Afghanistan, the beaches of Diego Garcia, the barracks of Okinawa, the supermax prisons of rural America, the corporate Board Rooms of urban America (and, increasingly, suburban America), the tax havens of the Cayman Islands, and so forth. In the future, we can choose to allocate resources differently.
After all, our country was extremely rich back in 1998. That $9 trillion in GDP is more than any other country today. There are about 116 million households in the US. If we guaranteed $50,000 in household income, that would consume about $5.8 trillion of our GDP. In other words, our remaining GDP after such a 'radical' redistribution of wealth would still be larger than the GDP of every other country on the planet.
The performance of our equity markets, I would contend, pretty accurately reflects the value of our economy. There's been a lot of volatility, a lot of uncertainty, a lot gained and lost. And the short of it is that we're where we were at in the late 1990s. The entire additional output of the labor force over the past decade has been squandered. When that event is combined with the longer trend of concentrating wealth upward, the outcome is that people suffer. That part we can't do anything about now but look back on sorrowfully.
What we can change is the future. We can say that our lost decade is behind us, that moving forward, we're going to embrace options that invest public dollars wisely and guide private dollars effectively. As long as we're responsible for the events, we have the power to change them.