But fairness isn’t the only reason the tax cut was ill-advised. As an economic remedy, it won’t work for three reasons. Most of it won’t kick in until far into the future, too late to help us out of the current slump. It puts the vast majority of the money returned into the hands of the wealthy, even though a tax cut targeted to the poor, working and middle classes makes more sense, since those groups are more likely to stimulate the economy by spending what the government foregoes in taxes. And, of course, the cut portends federal budget deficits as far as the eye can see, which is disturbing investors who often base decisions on prospects in the longer run.

Now, as the economic bad news continues, Bush refuses to acknowledge the threat. While the president focuses on Iraq and terrorism, the lack of national economic leadership is making consumers, businesses and investors nervous. The prospect of war with Iraq is also seriously depressing investor and consumer confidence. Meanwhile, Bush hasn’t introduced any type of economic rescue or stimulus package to Congress. But, so far at least, Bush hasn’t had to address the economic crisis, since he has paid almost no political price for his failure to do so. And for that, the Democrats have only themselves to blame.

The best thing the president has going for him politically, in terms of deflecting attention away from the sagging economy, is the embarrassing timidity of the Democrats. Watching them this year has been like watching a great veteran hitter strike out again and again on a bad pitch: His reflexes may have slowed slightly, and the press keeps telling him that he is past his prime. His coaches keep telling him to shorten his swing. But clearly his real problem is confidence.

The Democrats have been listening too well to both the press and their “coaches” — specifically, the “New Democrat” advisors who have proudly taken a page from the Republicans and Alan Greenspan. The bad pitch they can’t resist is the notion that Americans want tax cuts, at almost any price. Many Democrats now believe that social programs are a perhaps-necessary evil that will always drag the economy down because they drain money from capital spending. And they think it’s political suicide to call for rescinding the long-term Bush tax cuts for the wealthiest Americans: Even a newly energized Al Gore refused to take that stand in a recent speech at the Brookings Institution. Sen. Ted Kennedy has been one of the few prominent Democrats to stand up and demand at least postponement of the cuts, but these days the party considers him too far to the left.

In fact, the big Bush tax cuts hurt the economy, and some types of social spending would help it. Increasing selective social spending would do two important things at once: Help the overall economy and protect American families from the worst impacts of this slowdown. With Republicans and Democrats both steering away from this approach, you’re not hearing about it in many political stump speeches as we approach Nov. 5, but you should.

It’s clear the economy is not going to revive from its torpor any time soon. Gross domestic product, which started falling in the spring of 2001, started to rise modestly this spring, but now looks to be weakening again. The labor market has not revived. The number of jobs in the economy fell substantially for a year, and has now remained about flat. Most telling, the number of employed has fallen as a proportion of the population for well more than two years, the longest such decline in the past 50 years. That means people are leaving the work force in droves, but are no longer counted as unemployed. The rise in the unemployment rate, up 2 points since early last year, actually understates the labor market’s weakness. And foreign economies are weakening, too, providing less demand for the nation’s exports. The trade deficit — the excess of imports over exports — hit another monthly record in August.

The list of negative indicators is long. Stock prices have fallen faster than at any time since the legendary bear market of the early 1970s. Earnings are weak. The deficit keeps rising. Capital investment is not likely to come back. Many of the nation’s economic gains stemmed from the famous rise in productivity — output per hour of work — which had a lot to do with computer technology and investment in that sector. It’s unlikely to continue — recent productivity increases have more to do with aggressive layoffs and staff reductions than long-term strength, but new-economy advocates cling to it as proof that the stage is set for another boom. And it isn’t. Another dip may be more likely than a boom any time soon.

Against this backdrop of economic gloom, it increasingly appears that no one is at home in the Bush administration when it comes to these issues. Treasury Secretary Paul O’Neill has been tone-deaf to domestic and international economic concerns. He dismissed the Enron scandal as capitalism at work and downplayed what someone in his position could do to make a difference. By contrast, Clinton administration predecessor Robert Rubin — like him or not — played a large role in smoothing over tough financial times, including the Asian financial crisis of 1997. His other economic advisors, hearty laissez-faire advocates who always enjoy a good excuse for government inaction, aren’t taken seriously.

Some energetic Republicans have tried to blame the problem on President Clinton. But if you had to pick a single culprit from the 1990s boom to blame for the current economic sluggishness, it wouldn’t be a Democrat, anyway. The more appropriate candidate is long-time Republican Alan Greenspan, chairman of the Federal Reserve, who fanned the speculative bubble with exaggerated claims for the new economy and refused to take any actions, such as raising margin requirements, to dampen trading. Greenspan’s support was also critical in getting the Bush tax cut passed.

That’s not to say President Clinton deserves no blame for the current troubles. His administration did not fight for new regulations to control accounting and finance excesses. In fact, it mostly supported legislation that made conflicts of interest in the financial community more likely. Even in the wake of the disgraceful failure of Long-Term Capital Management, the enormous hedge fund, the administration proposed no new regulations. And under the guidance of Rubin and his successor, Larry Summers, it simplistically promoted liberalizing capital flows around the world, which contributed to various foreign financial crises in 1997 and 1998.

Most significantly, the Clinton administration did not use either the political or economic capital it accumulated during the boom years to argue for greater social investment — which would have served to protect American workers and families from the severity of this latest downturn, as well as protect the resilience of the economy itself. The Democrats under Clinton trumpeted the “unprecedented prosperity” of the late 1990s, even as 40 million people lacked health insurance and America could boast of the highest child-poverty rate in the developed world (though child poverty did decline under Clinton).

Nearly half of American men saw their incomes fall over a 20-year period, even with the improvements of the late 1990s. In addition, many middle-income families lost economic ground thanks to education, drug, and healthcare costs that rose three and four times faster than typical incomes. Much of the household prosperity of the boom years had to do with spouses working in higher numbers and at longer hours, without the benefits of high-quality day care — let alone government-supported day care. And while many women found individual independence through work, even some formerly on welfare rolls, others, especially the less-educated, worked in poor, dead-end jobs, made less than males in the same jobs, and frequently had to work part-time for lack of full-time opportunities. Although the Clinton administration did preside over a quiet transfer of income through a big increase in the earned income tax credit, some college funding programs and other programs, it used stealth to accomplish its greatest victories. Clinton was afraid the Democrats had shed the “tax and spend” smear too recently to risk making the economic case for greater social spending head-on.

But he was wrong. As I argue in “Why Economies Grow: The Forces that Shape Prosperity and How to Get Them Working Again,” social programs can be critical to economic growth. Under the sway of ever more conservative economic and political leaders, we have forgotten that growing demand is as much an engine for long-term economic growth as technology or savings. And much-maligned social programs — unemployment insurance, Social Security, the earned income tax credit and other types of public investment — are critical to maintaining strong demand by fostering greater income equality. Increasing the minimum wage will also put more dollars in the hands of consumers. My biggest regret about Clinton is that he didn’t use his formidable intellect and political skills to make that case to the American people.

President Bush, of course, is ideologically opposed to remedies that might address either the problems of the boom years, or of the recent downturn. And without the boom, many will say now is not the time to dramatically expand social programs. But what’s striking is the extent to which the president has managed, with the help of timid Democrats, to forestall debate on what sorts of spending we can and can’t afford, and which types of programs hurt or help the economy.

The president clearly follows three basic political rules. First, never admit a policy is wrong. Second, never show disloyalty by firing an appointee. And third, always claim the other guys are playing politics. None of the three are doing anything to improve the economy, but so far at least they’ve worked politically. Bush managed to retool his tax-cut proposal — which he floated during the 2000 campaign as the way to spend the surplus that accumulated during the boom years — as a remedy for the downturn. This is economic policy by accident, but he got away with it. Two years later, his only answer to the protracted economic slump is still more tax cuts — not for workers, mind you, but for investors and business. But it won’t work.

While some Republicans try to claim that tax cuts set the stage for America’s boom in the 1990s, they’re clearly wrong. The first big round of tax cuts, under President Reagan, took place in 1981, and the economy did not embark on sustained growth until 15 years later. It hardly seems like provable cause-and-effect, but tax-cut supporters are undeterred by the time lapse. Likewise, some argue that the capital gains tax cuts of 1997 caused the stock market boom, which increased federal tax revenue, but that’s disingenuous. New-economy talk and dot-com fever were reaching their heights. Profits soared. Meanwhile, the Federal Reserve stepped on the monetary throttle hard in 1997 and 1998 to compensate for the international finance crises in those years. These are the factors that drove the market higher, not a capital gains tax cut.

In fact, the nation grew most rapidly in the 1950s and 1960s, when tax rates were much higher than now — indeed, that growth was even faster than growth in the late 1800s, when tax rates were meager. Clinton raised taxes on the rich in 1993, and the economy took off within the next two years — it might have done so sooner had Greenspan cut interest rates that year. And clearly, no one raised the capital gains tax in 2000 — and yet stocks fell, and federal tax revenues with them.

So what’s the answer now? Clearly the problem is not high taxes. One main problem is that business overinvested in high-technology equipment in the late 1990s, and we are not going to see aggressive business investment any time soon. A nation, indeed a world, with too much capacity to produce goods and services is not likely to see tax cuts for business and the wealthy succeed in restoring capital spending. We do not need tax cuts, as one businessman told me. We need people buying the products of American businesses.

Unemployment is one obstacle to such spending. Another obstacle is the high levels of debt consumers took on in the 1990s. Consumers have kept purchasing anyway, but the question is whether they will keep it up. If people fear they will lose their jobs, they are likely to cut back. GDP has to grow by 3 percent a year to produce a net gain in jobs. Few think it can do more than hobble along. The fall in stock prices is serious grounds for concern that the bottom could just fall out. And now housing prices may fall, too. (In some regions, like the technology-dependent San Francisco Bay Area, they’ve clearly begun to drop.)

Only a targeted package of social spending — including some tax cuts for the working and middle class — is reliably going to spur the economy. America needs a serious short-term fiscal stimulus. Congress should extend unemployment insurance, send money to newly cash-strapped states to keep up their health, education and welfare spending, and rescind the Bush tax cuts for the rich. A payroll tax cut for real working Americans could then be adopted, to promote spending now. These Social Security and disability taxes fall disproportionately on middle- and lower-income workers.

The components of an effective short-term stimulus plan are fairly simple. So it’s dispiriting not to hear more Democrats talk about them. House Minority leader Richard Gephardt has offered a plan to increase social spending, but also to cut as yet unspecified taxes for middle- and lower-income workers. Yet he refuses to support rescinding the Bush tax cuts on high-income Americans, even though they weaken the economy. Other Democrats, such as Teddy Kennedy, are supporting specific programs to expand unemployment insurance and raise the minimum wage. But there is no other broad plan to rescue the struggling economy.

Ironically, war and homeland security spending are helping to keep the economy from sinking. But it is unlikely that war spending will be sufficient stimulus to offset the spike in oil costs a war with Iraq almost certainly would trigger. And the high levels of public uncertainty, even fear, that would accompany such a war could very well keep stocks from rising, people from buying, and business from investing. The nation needs to invest in new demand directly, not merely as a byproduct of spending on war or national security.

And in the long run, we need to change the way voters and politicians understand economic tradeoffs. We need to balance the very real concerns over high federal deficits and inadequate American savings rates with the competing need to support a strong domestic market and economic equity. Savings will matter over time, but they cannot be emphasized to the exclusion of higher wages. Long-term deficits can be a drag on the economy, but short-term, targeted borrowing can be a stimulus. Free trade may be helpful, but domestic demand matters more.

Over time, we must address issues that the Bush administration simply won’t. Inequality must be targeted through expanded earnings tax credits, fairer welfare programs, a higher minimum wage, and efforts to root out the lasting effects of racial discrimination. One tragic lasting effect is the inequality and inadequacy of public education. Our tradition of locally funded K-12 schools has consigned poor children, disproportionately black and Latino, to crumbling buildings with poorly trained teachers and low standards, while wealthy suburban kids who start with every advantage get much more. Smart investment in education, preschool, day care and healthcare pays off in so many ways: By creating jobs to provide those services, we put dollars in the hands of people who’ll spend them. And by providing those crucial services, we develop a workforce that gives the nation a lasting competitive advantage that cannot readily be undermined by low-wage competition.

What is remarkable is the way we recoil from such an agenda. Yes, public spending can go too far. Yes, some Great Society programs were ineffective, inefficient and lacked accountability. But we have swung too far in the other direction. And even after eight years of prosperity under a Democratic administration, we could not revive the ideal of equity alongside economic growth, or make the case that one can lead to the other. It may be harder to make that case under a conservative Republican administration, and during an economic downturn. But we have no choice. Both fairness and the need to begin the economic recovery require that we begin soon.

According to the White House, the proposals being considered include tax incentives to encourage stock market investment and capital gains tax cuts — on top, of course, of the massive impending tax cuts for the wealthiest Americans already signed into law. Treasury Secretary Paul O’Neill defined the party line this way earlier this summer: “This is how we create economic prosperity — not by strangling people with interference and regulation and punishing restrictions on trade and job creation, but by opening the world up.”

In other words, meet the new new economy, same as the old new economy. Forget the inconvenient fact that deregulation hasn’t worked — that it’s given us an airline industry on the verge of collapse, higher electric and cable bills, a savings and loan disaster, to say nothing of Enron, WorldCom, Adelphia, AOL, Xerox, Merrill Lynch, et al. — the invisible hand is still the magical answer to all our woes.

How did the free-market ideology of the Reagan revolution come to be the political consensus of our times? How did we get suckered by the fairy tale that as long as people kept shopping, the market could keep our prosperity going as far as the eye could see? And that by voting with our credit cards, we could spread the gospel of prosperous democracy to any corner of the earth where American products were made or consumed. Like all fairy tales, it’s a nice story. But it’s time to acknowledge that this one didn’t have a happily-ever-after ending.

Over the last 20 years, Americans have been doused with regular sermons on the supposed correlation between unregulated markets and higher standards of living. In the process, the American people were demoted from citizens to consumers, and sold a bill of goods about how the almighty market was the essential foundation of democracy. Accepted notions of public protections — of the environment, of workers, of the poor — were scrapped, cast out as superannuated relics. Compassion became the 8-track player of public policy.

In the course of selling us on buying, the market-worshippers shredded the modern social contract, the hard-fought consensus that had emerged since the New Deal, and which ordered our political priorities, our communal concern for the most vulnerable and our disapproval of huge inequalities. We were now supposed to believe that all that could be left up to the soulless, self-correcting calculus of supply and demand. The free market had become the People’s Market and would, of course, take care of the people.

Once the province of Republican supply-siders, this all-encompassing faith was warmly embraced in the ’90s by New Democrats. And some old ones, too. Even Jesse Jackson rang the opening bell at the New York Stock Exchange and created a Wall Street Project. And according to a representative of the NYSE, there is “no shortage” of celebrities willing to ring the bell, smiling and applauding even after a 300-point drop.

The media also did their part, hyping stories that made it seem like everyone was making money investing. Who can forget the Beardstown Ladies, those bestselling, stock-pickin’ grannies from Illinois who were supposedly making a 23 percent return in the market? Or all those Millionaires Next Door — like Anne Scheiber, the lowly government auditor who, by patiently investing in stocks, turned $5,000 into a $22 million fortune?

Stressed out about retirement? Your kids’ college tuition? A family health emergency? Not to worry! The market would take care of all that. Even being downsized could be made fun and profitable. After AT&T laid off 40,000 workers in January 1996, hedge-fund manager Jim Cramer wrote a cover story for the New Republic titled “Let Them Eat Stocks.” In it he proposed a simple solution. “Just give the laid-off employees stock options,” he exulted, “let them participate in the stock appreciation that their firings caused.” And why not toss in a year’s worth of Turtle Wax while you’re at it, Jim?

The future that Wall Street had dreamt of for decades — free of pesky regulators, snooping politicians and profit-sapping social activists — had finally arrived in a golden, irrationally exuberant dawn. Just as communists had promised a utopia in which the state would wither away, the free-market ideologues in control in the ’90s promised us that we would reach Nirvana when all government intervention would, well, just wither away.

We would then find ourselves in a glorious Brave New World. Marxists and MSNBC stock analysts together at last, holding hands and feverishly chanting: “From each according to his culpability, to each according to his greed.”

It would take a while — and the fall of Ken Lay, Bernie Ebbers, Sam Waksal, et al. — before the invisible hand was exposed as a pickpocket. But even after the free-market parade had to be called off on account, not of rain, but of fraud, we have begun to hear the trickle-down marching bands warming up in the distance, ready to play their familiar siren songs. It’s time we resuscitated Mark Russell’s definition of trickle-down as “something that benefits David Rockefeller now and Jay Rockefeller later.” Or, to be a bit more current, George Herbert Walker Bush then, and George Walker Bush now.

There’s another blast from the Reagan past that is a little more relevant to most Americans’ current financial health than trickle-down dreams. Ask yourself, my friends, are you better off today, after all that tax cutting and deregulating, than you were four years ago?

Yet, after the miserable performance of the stock market these past five weeks, the forced resignations and indictments of corporate titans (not to mention the conviction of a top accounting firm), the humbling of the dollar and a rise in the trade gap, isn’t it time to ask whether the war on terrorism isn’t being milked as a convenient distraction? The question seems particularly relevant when our man in the White House has had close personal and financial ties to the company — Enron — whose demise is the most glaring symbol of the broad moral disarray of the nation’s corporate culture.

Is there any doubt that the chicanery of Enron executives and that of a growing Who’s Who of top CEOs has done more long-term damage to the U.S. economy than the efforts of anti-American terrorists? And while sending in the Marines to clean up the boardrooms is not feasible, we ought to wake up to the reality that business greed is subverting the American way of life — and hurting the image of American capitalism and democracy — more effectively than the ploys of any foreign enemy.

When even Martha Stewart is ethically suspect and her company’s stock has plummeted — though not quite to the depths of Enron, Global Crossing, Tyco, Dynergy, Wal-Mart and Rite Aid — it is time to return to the wisdom of Franklin Delano Roosevelt, the Depression-era president who saved capitalism from itself.

Wealthy from birth, FDR had a healthy awareness of the tendency of the upper classes to destabilize society and even destroy themselves with their greed and hubris. Unlike Karl Marx, however, he believed the unraveling of capitalism was not inevitable if these excesses could somehow be corralled. Thus was born the idea of government regulation as the vital support structure for the powerful, fertile but unstable free market.

Unfortunately, greedy people and institutions don’t like being monitored, and they have the means to corrupt governments and skirt laws.

Since the so-called Reagan Revolution, powerful corporate interests have succeeded in profoundly damaging the foundation of a properly regulated economy. Company auditors, for example, have become accomplices to deceptions of the public that should be considered criminal but that often do not violate statutes written by corporate lobbyists.

Enron provides a startling illustration of a company jumping through loopholes that its D.C. lobbyists have created. In fact, the Enron scams made possible by deregulation in the first Bush administration are still being revealed, such as last week’s reports that the company hid billions in income during the California energy crisis while publicly denying it was profiting excessively.

Yet former Enron officials continue to play an important role under Bush the younger. The Bush family, in fact, has never been seriously confronted by the media or Congress as to its questionable ties to former Enron chief executive Kenneth Lay, a close family friend and top contributor to Bush family presidential campaigns.

To be fair, the corporate corruption of our political system has long been bipartisan. The Clinton White House, for example, sponsored major deregulation acts, including the Financial Services Modernization Act, which reversed consumer protections enacted under Roosevelt, and the Telecommunications Act of 1996, which effectively ended all public accountability for the communications industry and has permitted a few media giants to gobble up vast markets.

Clearly, the problem is bipartisan when a Democrat-controlled Senate moves so hesitantly to confront the myriad examples of sickness in our economy and corporate culture.

The politicians hesitate to act because candidates of both parties are lavishly financed by the very people who are conning a gullible public.

Ah, for the late ’90s, when getting wired meant that our lives could only get longer, happier, healthier and richer as we all got linked up in history’s first truly global society.

But in the early 2000s, such cockeyed optimism has become about as popular as a Taliban T-shirt in a JFK gift shop. As a consequence, “The Long Boom” suffered its own market correction, dismissed as just one more spatter of froth from the dot-com bubble.

But suddenly, doomsaying about the state of the economy is also ringing false. The U.S. economy grew 5.8 percent in the first quarter of 2002. Few economists are ready to declare that boom times are back — layoffs are continuing at major corporations, and profits are still in short supply — but the recent recession is being labeled one of the mildest on record, just as the authors of “The Long Boom” predicted. Is it time for the techno-optimists to do their own gloating in a chorus of merry I-told-you-sos?

Peter Leyden was a coauthor of the original “Long Boom” manifesto as well as of a forthcoming book, “What’s Next? Exploring the New Terrain for Business,” to be published by Perseus in September. He’s a “knowledge developer” — note the late-’90s job title — for the Global Business Network think tank.

From his office in Emeryville, Calif., he talked about how the long boom survived the dot-com implosion and the terrorist attacks of Sept. 11, and why the new economy is alive and may soon even be well.

How do you evaluate the recession that we appear to be emerging from? Has it really just been a blip on a larger growth path?

It’s been an extremely shallow recession.

We were in a long boom, we are in a long boom and we’re going to be in a long boom for a while. It’s analogous to what we saw in the wake of World War II, the post-World War II boom.

People often think of the ’50s and ’60s as the great golden age of the American economy. Everybody’s boats were floating on the rising tide of economic expansion as we built up the suburbs. But they forget that in fact the postwar boom, which went on for about 25 or 30 years, was just punctuated constantly by recessions. It had six clear recessions — in fact much more dramatic recessions than we’ve experienced in the last 20 years.

When the economy slows, let alone goes into a recession, that does not negate the larger context of a vast economic expansion.

Many observers have suggested that the current recovery is fragile, however. There continue to be announcements of huge job cuts at companies like Lucent, and the stock market’s performance has been tepid. The market is not synonymous with the economy, obviously, but isn’t it symptomatic of something?

No, it’s not. It’s going to be confusing for a while, and that’s a sign of the confusion.

If you look again at how we came out of the last recession of the early ’90s, there’s an amazing amount of parallels here. That recession technically ended in 1991, but it took all the way into the mid-’90s until there was a sense that the economy was going to start really moving in a sustained way.

The more recent recession was not driven by a plunge in consumer spending. If there is any dramatic pickup out of a recession, it’s usually led by resumed consumer spending at high rates. This recession was driven more by business cutting off its spending because it had overbuilt its capacity and inventories were built out; so this is more of a business-led recession. So you’re not going to see the dramatic pullout that people want to think happens out of recessions.

As for big companies doing layoffs now, it’s the small entrepreneurial companies that actually hire quickest. It’s these big lumbering giant corporations, like Lucent, that are behind the curve, that are still essentially playing out their recession scenarios and recession strategies after the boom has already started.

We’re watching a lot of the fundamentals picking up again, and meanwhile the conventional wisdom is still caught in the doom and gloom.

“The Long Boom” came out at the height of dot-com mania, and many saw it as another piece fueling the speculative bubble. When that bubble popped, much of what had happened looked like a scam. How do you separate “The Long Boom” from that bubble?

The “long boom” to us meant a fundamental economic boom of sustained growth at high rates in both the American economy and the global economy. How the stock markets fared was simply a symptom of the more fundamental boom.

Every single transformative technology, like the telephone and railroads, has been accompanied by a frenzied stock market. But once you get through the frenzy, once the valuations crash, once there’s a shakeout of the companies, once you get the kind of consolidation amongst the really viable companies that can stay there for the long haul, then you’ve got the core infrastructure of a new technology that anyone can leverage.

Transformative technology is not about whether the company that makes the technology makes money or doesn’t make money. Some do, some don’t. It’s not a really big deal. The core thing of a transformative technology is that almost all businesses and society at large are able to leverage that technology and become more efficient, more productive, more successful.

And there’s no doubt that the Internet, telecommunications and computer technologies, taken together, are a transformative technology — and that is the thing that is driving and will continue to drive the growth of the overall economy.

So even with the tech sector still quite depressed, you continue to position technology as the great engine of economic expansion?

There was this glimpse in the late ’90s of what was going to happen relatively overnight, where everyone thought that it would happen in two or three years, and essentially everyone was overstimulated in terms of how quickly it could happen. It’s just going to take longer than most people thought.

When you look back at history, people will say: “Oh yeah, there was a stock run-up,” and “Oh yeah, there was a burst bubble.” But they’re also going to see it as a transition, as a confusing kind of chaotic time that was part and parcel of the ultimate build-out of this information infrastructure that became the foundation of the global economy in the early part of the 21st century. We kind of lose track of it now because we’re still caught in the confusing transition.

But people are starting to say: “Gosh, why was the recession so shallow? Why was our economy able to absorb an enormous hit to it with the 9/11 attack?” Global business went into a total freeze that lasted for weeks. An enormous shock to the system happened in September, and despite all the trauma, and despite all the emotionality that we all had, the economy was able to absorb that kind of shock and was able to in fact continue on a pretty robust pace and get us back on this trajectory.

This is an example of the robustness of this economy that should not be underestimated. I think we’re actually out of the period where everyone was wringing their hands and looking at all the negatives and basically doom-saying.

But couldn’t the ongoing threat of terrorism derail this economic expansion?

The Sept. 11 terrorist attack was the closest thing to jeopardizing the long boom.

The key issue in the next 10 years is whether we can avoid a weapon of mass destruction going off on U.S. soil. If a suitcase nuke or a rogue nuke goes off in the downtown of a major U.S. city, that could be a shock to the psyche of the American people in a way that would make 9/11 just a small beginning.

That is a very real possibility. In fact, one of the guys who we interviewed for our next book, John Arquilla, from the Monterey Naval Academy, put the odds at 1 in 4 that we’re going to see, in the next decade, one of these weapons of mass destruction going off. And he’s part of the security establishment that’s desperately putting that on the front of the agenda of what they need to stop.

The idea of the “new economy” became a whipping boy for the stock market bust. Do you still believe in the new economy? And would you define it the same way now that you did three years ago?

I fell prey to this as much as anybody. There was the real sense of throwing out the old — the old economy didn’t get it; the new economy got it. The older generation didn’t get it; the younger generation gets it. That kind of hubris, looking back on it, was really ridiculous and really misplaced. Now, that being said, there is something really new happening here.

A networked economy does work very differently, an economy based on this information infrastructure, this computer network, opens up possibilities that are very different from the old economy. I think that’s true, and it’s still true, and it’s going to be increasingly true.

A lot of these things that we talked about in the ’90s — “Oh, everybody’s moving to the Internet!” — in fact weren’t the case. It’s taking a long time, and that’s going to happen over this decade.

Are you still optimistic about some of the more rosy predictions your book made — like finding a cure for cancer?

I do think that we’re going to cure cancer.

While everyone was wringing their hands about the collapse of the dot-coms, biology, life sciences and energy technology have just gone gangbusters.

There’s been incredible growth in fuel-cell technology, to the point where it’s almost becoming conventional wisdom, even among the auto companies, that the shift to a fuel cell will happen. A couple of years ago people were thinking it was science fiction that you could stimulate stem cells to grow organs and replacement tissues, and now it’s considered something that’s going to happen in the next 10 years.

There is room for optimism in these other fields, and I do feel — if not as giddy as I might have been in the peak moments of the late ’90s — I really feel that there is plenty here to be looking forward to in the coming decade.

Let’s just say my reaction was muted. It’s not exactly a good time around our household to be spending that kind of money. Fiscal conservatism is the order of the day. This is a time of austerity, layoffs, lost bonuses, financial scandals.

The recession may be over, as Federal Reserve chairman Alan Greenspan recently declared, but you wouldn’t know it around our house. Cost-cutting measures have been in place for some time now, and they’ll remain throughout the slow recovery ahead. We’re cooking at home every night, although I’m not sure how much money we’re actually saving. (Our tastes in food haven’t changed, only the location in which we enjoy them. We are still, as author David Brooks so aptly calls us, bourgeois bohemians.)

But sound rationalizations and good taste aside, we were both at a bit of a loss as to what led my wife to make such a purchase at exactly the wrong time. We mentioned this purchase to some close friends, to whom we hastily tried to sell some of the wine, and they recounted stories of similar decadence at exactly the wrong moment — especially at the wrong moment — as if an empty bank account had the uncanny ability to make cash registers ring.

Orthodox economics says that we’re supremely rational beings — self-interested agents in a perfectly efficient market. We buy and sell because it’s in our interest to buy and sell. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their self-interest,” wrote Adam Smith in “The Wealth of Nations” in 1776.

Back in the real world, however, a different kind of logic prevails. We buy things we shouldn’t, we spend money we don’t have, we get caught up in sales. “Real humans, even when they know what is best, sometimes fail to choose [what is best] for self-control reasons,” wrote noted behavioral economists Sendhil Mullainathan and Richard Thaler in a 2000 National Bureau of Economic Research report.

These days, behavioral economics is a hot field in the otherwise dismal science. The behaviorists combine psychology with economics to unravel the human factors at play in otherwise rational and efficient market forces. In the hands of the behaviorists, the question of why we buy is translated into the more compelling query: Why do we buy the things we shouldn’t?

The behaviorists study why we so often regret the long-term implications of our less-than-rational short-term decisions. People put off retirement investing for the instant gratification of chocolate mousse. They say they want to save more, but when the money comes along from a tax refund, they buy a new car instead.

Harvard economist David Laibson even has a fancy name — “hyperbolic discounting” — for this tendency in ordinary consumers. “Delay of gratification is a nice long-term goal, but instant gratification is disconcertingly tempting,” Laibson and three other economists wrote in the August 2001 issue of the Journal of Economic Perspectives.

A middle ground between the separate planets of cold logic and irrational exuberance lies in a soon-to-be-published paper by economists George Loewenstein of Carnegie Mellon University and Dan Ariely and Drazen Prelec of the Massachusetts Institute of Technology’s Sloan School of Management.

Loewenstein and associates conducted an experiment in which they offered first-year business-school students at Sloan the opportunity to buy a range of luxury goods, including an “average” and a “rare” bottle of French wine, without referring to the actual price of the goods.

The catch was that subjects had to first state whether they would buy the bottles of wine at a price determined arbitrarily by the last two digits of their Social Security numbers (that is, 34 becomes $34). The students were then asked the maximum price they would pay for the bottles.

The Social Security number game is a trick called “anchoring manipulation” that’s borrowed from experimental psychology, and for some reason it makes otherwise rational people do irrational things. For no logical reason, students with Social Security digits higher than 50 said they would pay nearly twice as much as those with digits less than 50, even when reminded that this pricing system was completely arbitrary.

When presented with what was described as a higher-rated, “rare” bottle of wine, however, they still valued it much higher than the average bottle. Loewenstein and company called this combination of sensible relative prices built up from arbitrary valuations “coherent arbitrariness.”

This is a long way of saying that people don’t price things according to some inherent value set down by natural law, but instead on that object’s relative value. Unless they’ve done their research before walking into a store, most people don’t really know a product’s exact worth. But they do respond quickly — “robustly,” writes Loewenstein — if it’s brought to their attention that they’re getting an awfully good deal.

My wife may have known that these wines were ridiculously cheap, but she admitted later that she didn’t really know how much they were inherently worth. And even though she went in expecting to save only 30 percent on a single case of wine, she found herself caught up in a frenzy to save 20 percent more by buying an additional two cases. Such is the uncommonly strong power of a good sale. At least we can live with the comfort that our irrationally free-spending lives are logical in the eyes of economic behaviorists.

But there is a bigger picture to my story of impulsive behavior. Consumer spending drives two-thirds of the U.S. economy. That’s a whole lot of irrational decisions driving the fate of the stock market, the retail economy and the future of our jobs. And retailers and marketers are ruthless about exploiting this illogic through pricing tricks that drive people to buy. It’s just that we aren’t savvy about what they’re doing psychologically. And the behaviorists have shown that even when we’re shown how the tricks work, we continue to fall for them again and again.

We are not the completely rational beings that traditional economics tells us we are. Believing that we — the economy at large, and the stock market in particular — are supremely rational puts too much faith in our abilities to make the right choices. For example, some behaviorists argue that important economic decisions like 401K investing should become automatic deductions by default for new employees rather than opt-in decisions, precisely because people logically and all too predictably procrastinate or fail to sign up for the programs, even when it’s in their own long-term self-interest.

Imagine a not-so-distant future of a nation of procrastinators turned into penniless retirees under Bush’s plan to privatize Social Security and leave pensions to the whims of stock-market investing. And now thanks to Enron, there’s the added lesson that even if you do manage to sock money away in your company’s 401K account, your good deeds can still be trumped by your top executives’ desire for instant gratification — aka greed.

But in truth, the long-term future is an awfully abstract concept, and buying wine is a tangible short-term vote for living life in the present. It’s a balm for our fragile recessionary sanity that the behaviorists have come along to say that we aren’t supremely rational beings, and we shouldn’t expect ourselves to be. Because after all, “In the long run we are all dead,” wrote economist John Maynard Keynes.

I’ll drink to that.