Boom, gloom, and excess: yet the U.S. economy today is poised for serious takeoff.

• Author: Barbera, Robert J.

Continuing evidence of stellar U.S. productivity growth and a year of substantial real economy and stock market gains no doubt led U.S. Federal Reserve Chairman Alan Greenspan to break out the champagne. In dozens of speeches, from 1997 through 2000, Greenspan contended that monetary policy was not up to the task of identifying and stifling asset bubbles. Instead, he asserted, the central bank needed to be at the ready to mitigate the damage after the bubble burst. It now seems clear that the Fed has navigated the U.S. through the spectacular technology share price collapse of 2000-02 and that U.S. economic prospects are on the ascent. Greenspan's judgement, therefore, is looking better by the day.

To be sure, succeeding with the big ease is no small feat. Over the 2000-02 period, the glorious promise of late-1990s' optimists was decimated. In the United States in the 1930s and in Japan in the 1990s, comparably mammoth sentiment swings ushered in disastrous decades. In that light, if the upbeat U.S. economic news of the past several months continues, the cost of late 1990s excesses will turn out to have been remarkably small. More importantly, however, an extensive period of excellent productivity performance now appears to be an enduring legacy of the boom. And that development is the justification for having let the boom run its course.

How fantastic was the swing from boom to gloom? In April of 2000, President Clinton personally hosted the White House Conference on the New Economy. Attendees nearly unanimously endorsed a vision of a decade of surging economic growth, stellar corporate earnings gains, and trillions of dollars in accumulated government budget surplus--all compliments of the ongoing information technology revolution.

In rapid-fire succession, the collapse of NASDAQ, the 2001 recession, the evaporation of hundreds of billions of dollars' worth of corporate earnings, and the spectacular swing to deficit from surplus for federal and state governments laid waste to this brave new world. The conventional wisdom, in turn, came full circle. Financing technology start-ups and spending on high technology capital goods came to be associated with wasteful investment, fanciful profit projections, and ultimately fraud. Lengthening unemployment lines, disappearing 401 (k)s, and growing government red ink were all linked to the boom's excesses. As a consequence, debate about the late 1990s boom and the 2000-02 bust is now centered upon...