In the 1980s, Japan went through an enormous economic boom that was fueled mainly by explosive growth in real estate values. With interest rates at record lows and banks increasingly willing to lend larger and larger amounts with smaller down payments and lower incomes, the heights of real estate prices seemed unlimited. Ordinary salary men found themselves real estate millionaires. In Tokyo, one woman spent more than $10 million to widen her driveway by less than a foot. Some sushi bars offered delicacies served off the bodies of naked women and humble noodle shops added dishes sprinkled with flakes of real gold. To accommodate the burst of wealth, there was a new diversity of investment instruments and the highly conservative (in the "resistant to change" sense of the word) Japanese investment community developed a new streak of creativity when it came to finding ways to stow and grow the burgeoning piles of yen.

Our own recent experience in the United States makes it obvious where Japan was headed at the start of the 1990s -- it's just too bad that Japan's experience didn't keep us from inflating exactly the same type of bubble in the first half of this decade. However, if economists were all too willing to ignore the similarity of the Japanese situation in the late 1980s and the US situation in the early 2000s, there was one part of the Japanese experience that rarely left their radar. For years, economists and Wall Street insiders have warned against the possibility that the United States might suffer the horror of the lost decade.

Throughout the 1990s, the Japanese economy, as measured by the national GDP, was stagnant. It didn't shrink, as it would have in a classic recession, but it didn't grow. It just sat there. The prospect of this sustained period of "zero-growth" following on the collapse of an asset-fueled speculation bubble has been so great that warnings against the lost decade have come from both the right and the left. Paul Krugman cautioned against the possibility of the US slipping into a similar situation. President Obama warned against the lost decade when introducing his stimulus plan. On the right, the Japanese example was used as a warning of what happens when government steps in to try and control the effects of an asset bubble.

But what if Japan's lost decade isn't a peril to be avoided? What if it's the target we should be aiming for?

In 1851, Herber Spencer, a columnist for The Economist magazine, published Social Statics. In the book, Spencer warned that government regulation -- in fact, the simple existence of government -- was standing in the way of man's progress.

It is clear that man can become adapted to the social state, only by being retained in the social state. This granted, it follows that as man has been, and is still, deficient in those feelings which, by dictating just conduct, prevent the perpetual antagonism of individuals and their consequent disunion

In other words, because the government acts to make people behave, people don't learn to behave on their own. Spencer thought this was true both in daily life and in business affairs. Only by removing the government can man be allowed to evolve by "perpetual antagonism" to a state where mankind becomes capable of a self-sustaining society where actions are fairly rewarded. In shorter terms: government makes you soft.

What Spencer espoused was a pure form of Laissez-faire economics, one that countered the more moderated postulates of Adam Smith as well as the controlled markets of the "American System." He opposed any type of regulation, tax, or restriction on trade. Over the next decades, Spencer would go on to write books on not just economics but psychology, biology, and sociology -- laying the groundwork for the church of pure capitalism that was later adopted by everyone from Ayn Rand to Margret Thatcher.

For most of the last century and a half, the pure conservative idea made only sporadic gains. The reason for this was that it was so obviously flawed. Any period of deregulation (in America or elsewhere) was sure to be truncated by markets run rampant with short-term greed and "creative" ways to bilk investors and customers. Each such period required an external force to step in before the system reached collapse. Only prompt government action saved the banks, the markets, the savings and loans, the market again, the banks again...

Until recently, this boom-bust "business cycle" was kept in check by some measure of pragmatism. But a funny thing happened in the 1980s. As unrepentant conservatives took their fantasy of pure capitalism out of textbooks and into government, the swings of the cycle became ever stronger. Thoughtful, practical action fell out of style as people increasingly internalized the idea that laissez-faire capitalism was somehow related to democracy. Not only have we accepted radical conservative approaches as answers to disaster, as Naomi Klein covered so well in the Shock Doctrine, we've bought into them as a daily remedy in good times or bad. Times are good? Cut taxes and deregulate. Times are bad? Hell, you better cut taxes and deregulate even more. Rather than being contrite when the cycle of business excess drove the system toward the brink, the church of pure conservatism began to insist that each period of dergulation had not been deregulatory enough. Surely more deregulation and lower taxes on the wealthy would lead to conservative heaven -- where the conservatives would be rewarded for their righteous independence and the lazy left (filled with state-dependent minorities and corrupt labor leaders) would spiral into a well-deserved hell.

By the later decades of his life, Spencer embraced the idea of a strong central state as a critical partner for capital growth. That message never got to the generations that followed.

In Japan, as the government observed real estate values spiraling out of control and banks getting in over their heads, the government didn't wait for the asset bubble to pop -- it popped it. Then it tightened the flow of money and clamped down with new regulations and restrictions. Businesses screamed. Real estate values tumbled, with commercial real estate falling an amazing 87% (which sounds enormous until you realize it was was just about what that market had gained in the last years of the bubble's most rapid inflation). The imaginary millions vanished almost overnight. The gold flakes were no longer offered at the noodle shops. The government imposed tough new regulations, banks were forced to fold or merge. And the nation of Japan entered into that famous lost decade.

A decade in which the national GDP never declined below the value it held on the day the government stepped in. A decade in which the maximum unemployment rate was 5.5%. A decade in which the government actually expanded its support of both business and individuals, a decade in which retirees gained new benefits, a decade in which the government did not coerce consumers to fuel the economy with reckless debt, a decade in which not one Japanese citizen lost his or her right to health care services provided by the government.

So just how lost was that decade again?

The Japanese government acted as governments have always done in reasonable, practical countries that are dependent on capitalism. When business gets out of control and markets are near to failure, the government steps in and picks up the burden. The government reestablishes order and holds the economy together while business cleans the red ink from their books and gets back on their feet. The regulatory holes that allowed markets to get out of control are patched to prevent and immediate repeat of the problem. Then, when business is booming again, the government counts on taxes from business to put government's books back in balance so government can be there the next time. And there will be a next time. It's one of the lessons that we taught Japan after World War II, when America was a more practical, pragmatic nation.

That's how it should be working in America today. Government holding the ship on course while business gets over the hangover of a real lost decade -- a decade of binging and excess.

Only America is suffering from a purity problem. Not just the last decade, but the decades since the 1980s have seen a constant slackening of government regulation and, with the notable exception of a short period under Clinton, business has forgotten that part of the deal is that it support government during good times so that government is there when times are bad. Republicans, having converted to Spencer-style true believers in the divine intelligence of the markets, are loving capitalism to death. Rather than turn to government to damp out the waves of the business cycle and keep the markets on an even keel, they've fought against every attempt to reel in disastrous run-away, speculative balloons. Instead of helping to craft regulations that patch over cracks exploited by bad actors, Republicans have argued that the cracks were not worth patching. After all, the people driving the markets toward destruction are the smart guys while the people trying to rein them in are just government sluggards. Isn't it clear that the smart guys will always win this race? Really, say conservatives, there's no point trying to regulate since the smart guys will just find a new way to wiggle around any barrier. It is an argument that should be dismissed out of hand, but remarkably it isn't. And having mistaken rhetoric for reality, conservatives have turned the waves of the business cycle into tsunamis.

Government now has a hard time stepping in to help not just because Republicans have taken the position of preventing government of playing its traditional role, but also because Republicans spent us into such a pit of debt that the government isn't well positioned to shoulder the burdens of business gone sour. We should be able to afford a stimulus plan much larger than the one already established. We need such a plan, along with direct intervention in the job market, and swift re-regulation of the financial instruments used to take the nation to the brink. However, the dollars that could have saved the economy were spent on building up a huge naval fleet that was never used, a fantasy defense system that has never worked, and lining the pockets of people whose pockets were already heartily lined.

Not only have conservatives-gone-wild emptied the pool as the nation was standing on the high dive, their constant drive to remove more and more regulation means that this dive is the highest ever. Even if we'd had good fiscal policy under Reagan, Bush, and Bush jr. it would be hard to cushion against the kind of blow that was delivered thanks to the anything goes market created by Phil Graham and colleagues.

Even with the support of both parties, it would be very hard to take the level of action needed to address the problems we face. With one of the major parties doing nothing but shouting "jump! Jump!" as we try to edge back from destruction, the actions of those still grounded in reality will have to be more than tough. They'll have to be heroic.

Having abandoned practicality for a religion of lassiez-faire or death, conservatives don't care if they take everyone along with them on the way down. After all, when the government is handcuffed and the middle class disappearing, it's a sure sign that economic rapture and conservative paradise is just around the corner. Just around the corner. Just wait, you'll see.

It wouldn't hurt us to lose a decade, especially if what's lost is corporate profits in favor of higher employment and rising wages. It wouldn't hurt us to lose a decade in which we've swallowed poisonous ideas about the nobility of greed. Better yet, let's lose two decades -- the 1980s and the 2000s, along with the delusions they've carried.