Lost Decades

Two Decades of Prosperity: Gone

The collapse in asset values since 2007 has busted the net worth of the median family all the way back down to early 1990s levels.

Three-quarters of the loss can be explained by reductions in housing values.

The run-up in housing values over the past two decades was welcomed by almost all politicians, of both parties. The housing boom offered an escape route from an otherwise embarrassing and baffling problem: the stagnation of middle-class incomes. Maybe the U.S. could no longer deliver pay increases to the typical person. But at least that person's most important asset was growing in value, inspiring hope that Americans would pay for their retirements by selling their houses.

On its face, this was an unpromising idea. The next generation of Americans was not going to be so very much larger or so very much richer than the prior generation as to support a long-term tripling or quadrupling of housing prices. And anyway, housing is not nearly so reliable an asset as people tend to assume. (My father, a successful real-estate developer, jokes: "People don't make money on their houses. They only think they do because they don't keep good records of how much they spend along the way.")

Promising or not, the idea has now decisively collapsed. Individuals and societies gain wealth through saving, and Americans have failed to do much of that. In today's very hard times, saving becomes even more challenging.

But at least the illusion of a short-cut to individual and national wealth has been dispelled. That opens the way at least to a better discussion of what really happened over recent years—and how the US should arrange its policies to deliver better results to more people in the years ahead.