Nostalgia Ain’t What It Used to Be

Writing at Time Rana Foroohar says that Paul Krugman’s and Hillary Clinton’s recollections of the 1990s are wrong:

In his column, Krugman advocates thinking about the policies of the 1990s as a model for how to create another bout of prosperity. But what were those policies, exactly?

Bob Rubin, then Treasury secretary, balanced the budget and focused on market-led growth, rather than the massive public investment plan advocated by the other Bob, former labor secretary Robert Reich. Reich’s strategy of real, sustained investment in infrastructure and education (which Bill Clinton actually campaigned on) was deep sixed in favor of a more market-oriented, quick hit growth plan.

“I pushed hard for a major public investment strategy, but it got ground up in demands from Republicans and some Democrats to cut the budget deficit,” says Reich, now a professor at Berkeley. “In some ways, it was an early exercise in austerity economics.”

Would the Rubin strategy work today? Absolutely not. If we tried to balance the budget right now, we’d get European-style austerity. And while we still rely on the sugar high of super low interest rates, their effectiveness for boosting Main Street has decreased. Low rates have led to record stock prices, but Main Street growth is still sluggish, and wages are still relatively flat (as is productivity).

I think they’re wrong for another reason: the boom of the 1990s was a consequence of about 15 years of technology investment, something that has not continued and might not produce the same outcomes even if it were.