With the economy booming and the stock market soaring, the Great Recession, which was ushered in 10 years ago this weekend by the collapse of Lehman Brothers, should seem like a distant, if painful, memory. So why does it feel instead like a hangover that just won’t go away?
Well, the psychological effects of the crash and its aftermath were immense and long-lasting, as they were for the generation scarred by the Great Depression of the 1930s. Many people’s sense of personal economic security was shaken to the core, even if they were not directly affected; confidence will be rebuilt only slowly over many years, if at all. The lingering bitter taste of this experience is no doubt heightened by the fact that the bankers who took the risks that led to the crisis got bailed out by the federal government and were never called to account.
Moreover, the recovery that began in mid-2009 has been very slow, albeit steady. Median household income did not return to 2007 levels until last year, according to recently reported data from the Census Bureau, and the Federal Reserve calculates that the net worth of a typical middle-class family is still more than $40,000 below what it was in 2007, the last full year before the recession hit. The mortgage crisis, which resulted in 8 million foreclosures, hit the middle class particularly hard because much of its wealth was tied up in homes rather than in tradeable assets such as stocks. While the housing market has rebounded, the prospect of owning a home seems remote for many families.
Moreover, the fruits of the recovery have been enjoyed unevenly. Shareholders and investors, especially the already affluent, have profited handsomely, while wage earners have yet to benefit. Even as hiring accelerated during the early years of the recovery, the labor market until recently was sufficiently soft that workers had little leverage to secure raises or the unemployed to find a new job. Federal Reserve data analyzed by The New York Times indicate that over the last 15 years, the portion of family income derived from wages has declined from almost 70 percent to just under 61 percent, “an extraordinary shift driven largely by the investment profits of the very wealthy.” In short, the financial crisis and the recovery greatly exacerbated the trend toward increased wealth inequality that was already underway.
So what are the odds that the millions of Americans who were late to the recovery party will get to enjoy it before it’s over? It appears to some observers that the current hot economic weather is breeding another storm, although when and where the lightning will strike is uncertain. For example, some economists think that levels of corporate and personal debt are approaching worrisome levels, and they also wonder what rising interest rates will mean for the economy.
President Donald Trump’s tariffs and trade wars are another source of potential trouble in a global economy where vast supply chains stretch across oceans, as is Great Britain’s halting exit from the European Union, which will have unpredictable effects.
A longer term worry is that Congress and the White House collaborated on a big tax cut geared to the wealthy that, combined with a major increase in spending, will result in a massive spike in the federal budget deficit. Most economists regard it as a major mistake to sharply increase the deficit in flush times, because it limits capacity to stimulate the economy when the next recession hits.
Meanwhile, reckless Republicans on Capitol Hill have been dismantling the regulatory reforms put in place to curb the risk-taking excesses in the financial system that led to the 2008 crisis.
The pain of the Great Recession was concentrated on working households, the gain of the recovery on the investor class. The millions of families that were hard hit last time would do well to be as prudent as possible in their own borrowing and consumption in advance of the next downturn. But they also should vote this fall for candidates who understand the struggle of the shrinking middle class for a better life, not those who would continue to cater to the overdogs in American society.