The new war on terror isn’t going to be of much use in combating the present plunge in America’s well-being. Well before the twin towers fell to earth the country was entering a fierce decline, and it is assuredly going to get worse.The fall in growth and investment from early 2000 to early 2001 was the fastest since 1945, from 5 percent growth to zero. So fast, indeed, that people are only now catching on to the extent of the bad numbers, and battening down the hatches as bankruptcies begin to rise.

How did we get from the Merrie Then to the Dismal Now? The bubble in stock prices in those last five years sparked an investment boom, as corporations found mountains of cash available, either from the sale of overvalued stocks or by borrowing money from the banks against the high asset value of those same stocks. And as the Lewinsky years frolicked gaily by, there was a simultaneous consumption boom as the richest fifth of the citizenry–the Delta Force of national consumer spending–saved a lot less and spent a lot more.

The shadows were there for those who cared to look for them. In 1998, 1999 and 2000, when the boom was reaching historic proportions, when annual borrowing by US corporations had reached a historic peak as a percentage of GDP, when Fed Chairman Alan Greenspan was vaunting the power of markets, the rate of profits was falling in the nonfinancial corporate sector, significantly so in manufacturing.

The bubble was due to burst. Now, with the market going down, corporations have less money, can borrow less and invest less. Consumers have less to spend and have begun to lose their appetite anyway. Down go the rates of investment and consumption, and the amount of government debt that the Bush Administration can muster as a Keynesian stimulus will be more than offset by a decline in private debt, as people turn prudent and ratchet up their savings.

But the problems go deeper. The corporate investment boom of the late 1990s took place against a backdrop of falling profitability. Who builds new plants when the bottom line is turning sour year by year? Answer: US corporations in the late 1990s. There was no correlate of investment against the rate of return, hence the amassing of overcapacity on a herculean scale. Between 1995 and 2000 retail store space grew five times faster than the population. Earlier this year, Business Week reckoned that only 2.5 percent of communications capacity is being used.

The most notorious sector was telecommunications, where borrowing was vast and stocks insanely inflated, with analysts boiling up ever more ludicrous ways of claiming profitability for their favored stocks. The degree to which stocks rose above profits was greatest in technology, media and telecommunications (TMT). In this sector, the leading edge of the boom, between 1995 and 2000 the value of TMT stocks grew by 6.1 times, but their earnings by only 2.1 times.

The Organization for Economic Cooperation and Development’s survey of the United States for 2000 makes for chastening reading. By that year, the final distension of the bubble, the value of Internet companies reached 8 percent of the total value of all nonfinancial corporate assets in the economy. But most of those companies made only losses. Of 242 Internet companies reviewed in the OECD study, only thirty-seven made profits in the third quarter of 1999, the prepeak of the bubble. Their price-to-earnings ratio was 190 to one; precisely two of these accounted for 60 percent of profits. The other thirty-five profitable companies traded on an average p/e ratio of 270 to one; the 205 remaining companies made losses. For 168 of the companies for which data are available, total losses in the third quarter of 1999 amounted to $12.5 billion at an annualized rate, even as their stock-market valuation reached $621 billion.

You want a definition of a bubble? That’s it.

So was there really a “New Economy” emerging in the sunset of the century, as proclaimed by so many exuberant choristers? True, the 1995 to 2000 economy did do better than in any five-year period back to the early 1970s. By all standard measures, such as productivity, economic growth, wages, growth of investment, unemployment and inflation, it was a pretty good time. But as Professor Robert Brenner of UCLA, whose Boom, Bubble, Bust: The US in the World Economy is about to be published by Verso, aptly asks, “If the five years 1995 to 2000 truly saw the emergence of a New Economy, manifesting ‘extraordinary performance,’ as Clinton’s Council of Economic Advisers put it, what are we to call the period 1948 to 1973, which excelled the recent period in every respect?” Productivity growth was about 15 percent slower in those five recent years than in the twenty-five years between 1948 and 1973.

Obit writers for the great boom of 1995-2000 usually avert their eyes from the fact that despite all the exuberance of those giddy years, in terms of growth of gross domestic product, of per capita GDP, of wages and productivity, the 1990s as a whole did worse than the 1980s, and the 1980s worse than the 1970s. In other words, the golden end of the twentieth century was a continuance of the long stagnation of the world economy that began in 1973.

For now? On the one hand, overcapacity; on the other, a drop in investment and consumption, driven first by the drop in the market, then by fear. It will be quite a while before anyone feels the need to invest, hence to borrow. Give the rich a tax cut? It won’t help. They’ll put it in the bank. Government investment? Yes, if it were done on an appropriately vast scale, but only public investments of a sort that Republicans have never countenanced and that vanished from the political platforms of the Democratic Party decades ago. For sure, planes and missiles for the Navy and Air Force, plus the millions in food aid dropped on Afghanistan, plus new computers for the Office of Homeland Security, aren’t going to do the trick.