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This is what a broken economic model looks like: record profits for corporate America, Wall Street paying out fat bonuses to its execs and the wealthy doing well enough to create a surge in demand for luxury items, while most of the rest of us struggle just to make ends meet in a devastated economic landscape.
You’ve no doubt heard about the unemployment numbers and the alarming number of Americans losing their homes, but a series of reports that paint a stunningly vivid picture of the human toll of the meltdown – the intense pain felt by the unemployed, the under-employed and the working poor – have gotten less play, in large part because while most of the U.S. remains in the grip of what appears to be a Second Great Depression, the political and media establishment largely ignores — or at least underplays – the economic catastrophe a huge number of families are experiencing.
Part of the reason for that disconnect is simply that corporate America is sitting on record profits, and the stock market has by and large rebounded from its bottom. It’s also due to the fact that a country as large as the U.S. doesn’t really have a single economy; we live and work in a number of state and regional economies. And the Washington DC metropolitan area is doing very well – its residents are living in an economy completely divorced from the one in which many Americans are desperately trying to stay afloat.
The unemployment rate in DC is 6 percent – more than a third lower than the nationwide rate of 9.4 percent. It added more net jobs in 2010 than any other area in the U.S. In 2008, before the crash, residents of the metropolitan area enjoyed the thirdhighest incomes in the U.S.; since the meltdown, their wages have remained well above the national average. (It’s worth noting, however, that according to the Washington Post, the political class’s newfound obsession with cutting the deficit may put a damper on the DC area’s fortunes in the coming years as tens of thousands of public sector jobs are killed off.)
Now consider how the capital region is doing compared to the rest of the country. Unemployment has stood at over 9 percent for 20 consecutive months, the longest stretch since the Great Depression. The Wall Street Journal reported that this persistently high level of joblessness is resulting in a “steep, lasting” drop in wages. “Between 2007 and 2009,” wrote the Journal’sSudeep Reddy, “more than half the full-time workers who lost jobs that they had held for at least three years and then found new full-time work … reported wage declines” and over a third of those workers “reported the new job paid at least 20% less than the one they lost.” That kind of income drop dwarfs that of previous post-war recessions.
Some among that number have been forced to accept minimum-wage jobs. And according to Jeannette Wicks-Lim, a scholar at the University of Massachusetts’ Political Economy Research Institute (PDF), almost nine out of 10 full-time minimum-wage workers can’t afford the basic necessities of life, which she defined as making enough “to protect them from serious economic hardships such as worrying about food, relying on a hospital emergency room to meet their health care needs, and having their utilities shut off.”
What many don’t understand about the grim reality of the American labor market is that its impact on workers who have faced extended unemployment can reverberate for decades – long after the economy has recovered. Columbia University labor economist Till von Wachter studied the fortunes of workers who faced sudden lay-offs during the 1981-1982 recession in the period since that time. He found that even after 15 to 20 years, those workers’ wages were still 20 percent lower than comparable workers who had held onto their jobs in the early 1980s downturn.
According to the Journal, the impact of this kind of joblessness can span generations:
Research shows that children of workers who lose jobs and go back to work at lower wages appear to suffer from lower wages, too. In a 2008 study, a group of economists tracked the wages of 60,000 father-child pairs from 1978 to 1999. Children whose fathers went through mass layoffs in the 1982 recession ended up with 9% lower earnings than similar children whose fathers didn’t experience the job cuts.
The toll lengthy unemployment takes can’t be overstated. Six of 10 jobless Americans report having to borrow money from friends or family; more than a quarter have been forced to change their living arrangements – taking roommates or moving to cheaper places – a third have missed mortgage payments; almost one in 10 have declared bankruptcy and nearly 20 percent have “sought professional help in the past year for a stress-related disorder or depression,” according to research conducted by the John J. Heldrich Center for Workforce Development at Rutgers’ University.
Those holding onto their jobs aren’t doing that well, either. According to the same study, almost four in 10 say the recession has had a “major” impact on their lives, a majority characterize their personal financial situation as “fair” or “poor,” and almost six in 10 have taken on debt to get by.
This year, the Census Bureau responded to criticism that its poverty measure tended to undercount the poor by releasing a new, more comprehensive metric. According to the new “supplemental” measure, almost 16 percent of Americans are living in poverty today. But the official rates still don’t tell the full story of American poverty; according to the 2009 threshold, a family of four struggling to get by on $22,500 – a “poor” family by any estimation – fell above the official poverty line. The Organization of Economic Cooperation and Development uses a rather straightforward measure – anyone making less than half of the media income is considered to be living in poverty. By that standard, long before the crash, in the mid-2000s, our poverty rate ranked thirdamong OECD countries – bested only by that of Mexico and Turkey – at over 17 percent.
The housing market is clearly in Depression territory. In November, real estate prices fell for the 53rd straight month, and CNBC reports that average values have now dropped by 26 percent since 2006, just edging out the decline in home prices between 1928 and 1933. “What’s worse,” notes the business news service, is that “it’s not over yet: Home values are expected to continue to slide as inventories pile up, and likely won’t recover until the job market improves.” And the job market isn’t expected to improve significantly for several years.
We’re stuck in a vicious cycle — consumer demand is in the tank and likely to stay that way until the jobs crisis begins to ebb and the housing market stabilizes, and yet neither of those things is likely to happen until consumer demand picks up and spurs companies to start hiring.
The public rejects the Right’s explanation for this dismal reality. According to the Rutger’s study, 90 percent of the population believe that the unemployed really want to work; 54 percent said “the federal government should fund programs that create jobs for the unemployed even if the debt goes up” as a result.
But they also reject the standard Keynesian remedy for such a bleak outlook – about three-quarters of those surveyed dismissed the idea of an additional stimulus package out of hand.
That leads to the question of what, exactly, can pull the economy out of this kind of downturn. Last year, economist Robert Reich wrote that the “economy can’t get back on track because the track we were on for years — featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere — simply cannot be sustained.”
Since the 1981-’82 recession, the economy has been on a roller-coaster of boom-and-bust – starting with the 1980s financial boom fueled by corporate raiders leading to the 1992 recession, which gave way to the dot-com bubble of the 1990s, which led to the 2000-2001 recession, which we got through riding the housing bubble that eventually deposited us where we find ourselves today. Economists are at a loss predicting where a new and sustainable engine of job growth might emerge.
A new economic model for the 21st century is necessary, and will require bold ideas that may not hew neatly to our traditional left-right paradigm. But that kind of thinking can only come with a sense of urgency – an appreciation for the destructive depth of this Depression. With Washington ensconced in a serviceable, even relatively healthy economy, that urgency just hasn’t been forthcoming.