At the height of the 1990s economic boom—a period of unprecedented growth—capitalism American-style seemed triumphant. After sluggishness in the 1970s and 1980s, productivity in the United States had risen sharply, to levels that exceeded even those of the boom following World War II. Globalization was in full swing, and in ways that redounded distinctly to the good of this country. The North American Free Trade Agreement (NAFTA) and the so-called Uruguay Round of international trade negotiations promised to bring untold benefits to our economy. The flow of capital to emerging markets had multiplied sixfold in just over six years—a remarkable increase, driven by the search for ever higher returns. U.S. representatives at G-7 meetings and elsewhere boasted of our success, preaching to the sometimes envious economic leaders of other countries that if they would only imitate us, they, too, would enjoy such prosperity. Asians were told to abandon the model that had seemingly served them so well for two decades but was now seen to be faltering. Sweden and other adherents of the welfare state appeared to be abandoning their models as well. The U.S. model reigned supreme. There was even talk of a radical New Economy, in which incomes would soar and the very idea of a business cycle would be relegated to history.
There is no question that the nineties were good years. Jobs were created, technology prospered, inflation fell, poverty was reduced. I served in the Clinton Administration from 1993 to 1997, and all of us who were involved in U.S. economic policy during those years benefited from a happy confluence of events. We eagerly claimed what credit we could for the prosperity; the American people, wanting to believe that the economic good times were a matter not just of luck but, rather, of good management, willingly gave credit to those responsible for shaping economic policy, in the hope that under the continued stewardship of such policymakers this prosperity could be prolonged.