Definition of 'Lost Decade'
The 1990s for Japan, and the first decade of the current millennium for the United States. “Lost Decade” was a term initially coined to describe the Japanese economy in the last decade of the previous millennium. The bursting of a massive real estate bubble in Japan in the 1980s led to sluggish performance, not just in the subsequent "lost decade," but in the following one as well. The term has also been applied to describe the state of the U.S. economy from 2000 to 2009, as an economic boom in the middle of that decade was not enough to offset the effects of two huge recessions toward the beginning and end of that period.
Investopedia explains 'Lost Decade'
By most measures, the period from 2000 to 2009 was a true “lost decade” for most U.S. households, as steep declines in real estate and stock prices resulted in massive wealth erosion. The S&P 500 recorded its worst ever 10-year performance in that decade, with a total return including dividends of -9.1%, which was even worse than its performance during the 1930s depression.
Net job creation for the U.S. economy was essentially zero during this period, as the economy lost more than 5.5 million or 33% of its manufacturing jobs, and the number of long-term unemployed reached record levels by the end of this period. Overall economic growth also grew at its slowest pace in decades over this period.
By November 2013, however, the U.S. economy had rebounded to such an extent that its lost decade seemed like a distant memory. U.S. household net worth reached a record $74.8 trillion by the end of the second quarter of 2013, helped by rebounding home prices and a surging stock market. Fueled by an unprecedented degree of monetary stimulus from the Federal Reserve, the Dow Jones and S&P 500 reached new highs in the second half of 2013.
As for Japan’s lost decade, a number of economists – including Nobel laureate Paul Krugman – have questioned whether that period was really as bad as many think. Krugman argues that Japan’s unique demographics – a rapidly aging population and a shrinking workforce – have to be taken into account when evaluating its economic performance. If real GDP is calculated per working-age adult only, Krugman notes that growth averages about 1.2% annually from the early 1990s to the 2007 peak. Krugman argues that this demographic adjustment makes the whole issue of Japanese stagnation a myth.