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Among economic systems, capitalism is the manic-depressive patient. Exuberance, unbridled optimism, and euphoria are followed by gloom, listlessness, and depression. But no matter how often the cycle is repeated the patient always believes the latest boom will last forever, only to feel foolish again when the bubble bursts. And no matter how often the patient reverts to manic behavior when taken off medication, the economic "psychiatric" establishment eventually succumbs to the patient's pleas to be taken off medication during the "ups"—freeing the exuberant economy from policy restraints—only to insist on placing the patient back on meds—re-application of necessary policy protections—when the unmedicated patient "crashes."

The truth is that neither part of capitalism's manic-depressive boom-and-bust cycle is "healthy." Like most capitalist booms, the benefits of global liberalization during the 1980s and 1990s were not all they were made out to be. In fact, most people in the world were worse off economically at the end of the latest boom than they had been when it began—that is, even before the over-hyped boom metamorphosed into the global economic crisis of 1997-98. How is this possible, you ask? We were told "the world economy grew at 3 percent a year in the 1980s and 2 percent in the first half of the 1990s," and that "low- and middle-income economies grew more rapidly, averaging 3.4 percent growth in the 1980s and 5 percent in the 1990s." We were assured that "growth in trade from increased trade liberalization that has gone hand-in-hand with increased private capital flows and financial integration," together with "internal privatization and progressive dismantling of regulations and controls," had produced a rising global economic tide that was lifting all but the most unseaworthy boats. And we were advised that since 43 percent of U.S. households now own stocks, the spectacular increase in the U.S. stock market over the last decade had distributed generous benefits widely.

First, world output grew more rapidly in the period before the great experiment in deregulation and globalization. Second, world population grew along with GDP from 1980 to 1995. While world GDP grew at an annual rate of roughly 2.5 percent, world population grew at 1.6 percent per year over the same period, leaving less than a 1 percent annual increase in per capita GDP over the period. Third, GDP is a notorious overestimate of the benefits from economic activity. When depreciation of produced and natural capital are subtracted, and when environmental degradation is accounted for, what appeared to be a meager annual increase in economic well-being per person becomes a decrease in average sustainable well-being per year during our most recent stretch of "good times." Fourth, corrections due to "green accounting"—which simply apply the same treatment to natural capital as to human-made capital, and to environmental amenities as to other goods and services—does not account for adverse changes in the distribution of income nor in increases in economic insecurity. Yet, along with the increased pace of environmental degradation, rising inequality of income and wealth and increasing economic insecurity were far and away the most significant features of the "good years" we just enjoyed.

The share of income of the top 5 percent of households in the U.S. climbed from 16.6 percent of all income in 1973 to 21.2 percent in 1994. The share of the richest 20 percent rose from 43.6 percent to 49.1 percent, while the share of the poorest 20 percent fell from 4.2 percent to 3.5 percent. Worse still, not only has the relative share of income fallen among the bottom half of the income distribution in the U.S., but their absolute income has fallen as well. The average income of the poorest 20 percent fell by 2.7 percent between 1973 and 1994, and that of the second poorest 20 percent fell by 3.8 percent, while that of the top 20 percent rose by 27.2 percent, and that of the top 5 percent rose by a dramatic 44.2 percent. A statistic called the Gini coefficient is the most commonly used measure of inequality. In any distribution, perfect equality yields a Gini coefficient of zero, while perfect inequality yields a Gini coefficient of one. The Gini coefficient measuring income inequality in the U.S. rose from 0.419 to 0.479 between 1975 and 1993—more than a 14 percent increase in inequality.

The increase in wealth inequality was even more dramatic during the "good times." The share of total wealth owned by the top 1 percent almost doubled between 1976 and 1992. This was largely because the top 1 percent of wealth-holders received 62 percent of the total gain in wealth between 1983 and 1989, while the bottom 80 percent got only 1 percent of the new wealth over that period. Worse still, the average wealth of the bottom 40 percent of wealth-holders actually declined. Meanwhile, the average real wage in the U.S. fell by 11 percent between 1973 and 1993, despite continued increases in labor productivity, with the largest drops occurring in the lower wage brackets. In contrast, corporate profit rates in the U.S. in 1996 reached their highest level since these data were first collected in 1959. And while it is true that 43 percent of U.S. households now own stocks, since most own very little (largely through 401(K) and other retirement accounts), the top 10 percent of households appropriated 86 percent of the stock market gains since 1989.

Two years ago the disparity between official figures indicating steady economic growth and surveys revealing that most Americans feared more for their economic futures than at any time since the Great Depression gave rise to a surprising seven-part series in the New York Times on downsizing. The NY Times series kindled so much interest that other major dailies like the Washington Post and Los Angeles Times scurried to print their own imitations. As layoffs extended from blue-collar workers to middle-management and from rust-belt industries to financial services, as the number of Americans with no health care insurance climbed to 43.4 million, as temporary and part-time jobs replaced permanent, full-time jobs, as low-skill, low-wage jobs replaced high-skill, high-wage jobs, as hours worked per family climbed while most family incomes stagnated, the discrepancy between rising economic fortunes for the few and declining economic conditions for most had finally became impossible for even the NY Times and fellow travelers to ignore completely. But two more years of low unemployment and inflation, combined with a spectacular run on the U.S. stock market, allowed the media to replace stories about family tragedies from downsizing with exhilarating stock market updates, effectively silencing the alarm bell. Only recently, as clouds have appeared on the international economic horizon threatening the Wall Street bubble, have pundits begun to ask themselves if it was wise to ignore earlier warnings.