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WEDNESDAY, NOVEMBER 25, 2009
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 OPINION 
4

Krugman: We've All Been Madoffed

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(Newser) – Bernie Madoff’s investors thought they were getting richer every quarter. Then, one day, they discovered their wealth “was a figment of someone else’s imagination,” writes Paul Krugman in the New York Times. And sadly, that’s a pretty good metaphor for America’s experience this decade. We thought we were getting rich, and now awake to find average household net worth lower than it was in 2001.

This shouldn’t surprise us, of course, since we weren’t saving. The savings rate dropped from 9% in the '80s to just 0.6% from 2005 to 2007. We borrowed and spent, trusting our portfolios to keep growing. “Then reality struck,” says Krugman. “The surge in asset values had been an illusion—but the surge in debt had been all too real.”

Market charts show weekly figures for Dow, S&P 500 and Nasdaq.
Market charts show weekly figures for Dow, S&P 500 and Nasdaq.
A man leaves an American International Group office building Tuesday, Sept. 16, 2008 in New York.
A man leaves an American International Group office building Tuesday, Sept. 16, 2008 in New York.   (AP Photo/Mark Lennihan)
In this Wednesday, Jan. 14, 2009 file photo, Bernard Madoff, the accused mastermind of a $50 billion Ponzi scheme, leaves Federal Court in New York.
In this Wednesday, Jan. 14, 2009 file photo, Bernard Madoff, the accused mastermind of a $50 billion Ponzi scheme, leaves Federal Court in New York.   (AP Photo/Stuart Ramson)
Specialist Ned Zelles works on the floor of the New York Stock Exchange Wednesday, Oct. 15, 2008.
Specialist Ned Zelles works on the floor of the New York Stock Exchange Wednesday, Oct. 15, 2008.   (AP Photo/Richard Drew)
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If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. - Paul Krugman

The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump. - Paul Krugman

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4 comments
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woody66
Feb 16, 09 10:17 AM CST
Very insightful. It appears we have not for some time now, been producing enough real wealth in terms of goods and services that we can consume or trade to support our standard of living. We have borrowed and saved nothing to make up the difference. So now do we get back to producing more actual wealth in our economy or do we take a permanent hair cut in our standard of living ? One thing for sure (and Mr. Krugman is not asking for this in his article)............trade barriers are NOT the answer. If we believe through our technology and hard work that America is, or can be the most productive economy on the globe then we want access to foreign markets. Reply
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Snowleopard
Feb 16, 09 1:05 PM CST
I think a very very large part of the problem has been too low of interest rates and an over-reliance on credit. All that easy money drives up prices.
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drlarrymitchell
Feb 16, 09 4:16 PM CST
It's fun to ride the bubble- for a while- but sooner or later, everyone slips off. Reply
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woody66
Feb 16, 09 5:53 PM CST
I fear this one is more than a bubble bursting but is a confluence of events which is exposing the long term weakness of the US economy, the result of a couple of decades of underfunding education, over paid CEO's, workers salaries and benefits unsustainably high in some industries (companies crushed under the weight of contracts & benefits for workers and retirees), the flight of manufacturing, false profits on investment bank casinos etc etc. .............as well as the fact that other countries have simply become more competitive......... Reply
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