What Will the next decade bring? spending more than we earn is simply not sustainable.

• Author: Adams, Tucker Hart
• Position: ECONOMIST

The Business Cycle Dating Committee of the National Bureau of Economic Research, the group charged with dating recessions and recoveries, met in April and announced it did not yet have enough data lo determine whether the recession is over.

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Despite the common belief that a recession occurs when output contracts for two quarters and the recovery begins when output starts to grow, the reality is far more complicated. The NBER looks at dozens of indicators before making its determination, usually months after the turning point in the business cycle.

There are two theories about the cause of the recent recession. One is that it was simply bad luck and could have been avoided if we had regulated financial institutions more rigorously and cracked down on subprime mortgage lending earlier. The second is that there were huge bubbles in spending, credit, housing and the stock market and that it was inevitable they would burst, with disastrous consequences.

The causes underlying the Great Recession are important because they determine the outlook for the next few years, If it was simply lack of regulation, complicated by greed and a dollop of dishonesty in the financial sector, then the problems can be addressed through tougher regulation, and the economy can quickly return to the robust consumer spending and rising home prices of the last decade.

If the period from the mid-1990s through 2007 was an anomaly, dangerously dependent on consumer borrowing and spending, then the next decade will be marked by a painful transition to more reasonable-levels of spending and borrowing.

I have argued for several years that we cannot forever spend more than we earn, either as individuals or as a nation. That puts me firmly in the second camp.

I believe the data support my view.

* Between 1997 and 2007, per-person spending on goods and services grew four percentage points faster than income and seven percentage points faster than output.

* Inflation-adjusted per-person debt increased by 80 percent.

* Inflation-adjusted mortgage debt per person almost doubled,

* Consumer spending, which accounted for 65 percent of growth during the 1988-1997 decade, constituted 82 5 percent during 1998-2007.

* Government spending contributed 14 percent to economic growth, double the previous...