Krugman: We've All Been Madoffed

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.” (More Paul Krugman stories.)