Dec 8, 2013
How the 40-Year ‘Long Recession’ Led to the Great Recession
Posted on Apr 10, 2013
By Barbara Garson, TomDispatch
The funeral was scheduled for a weekend and because of Duane’s handiwork, there was plenty of room for out-of-town guests, so his son assured me. In his Arizona home, “Dad built these beautiful built-in sleeping spaces.” His sisters, he mentioned, were toying with the idea of moving to the house because they couldn’t imagine a stranger fully appreciating their father’s work. They were even exploring the employment situation out there. One was then a medical receptionist, the other a delivery truck driver.
Two months later, the economy crashed. It wasn’t exactly the moment to give up steady jobs. By then, the Arizona real-estate bubble had fully burst, leaving the house, with all their father’s beautiful handiwork, “underwater.” Even if they could sell it at a reasonable post-crash price, they’d still owe the bank more than $200,000.
As his inheritance, all Duane had left was that house, a $15,000 death benefit, and $6,000 in credit card debt. His children had no way to keep paying the mortgage, and so, on the advice of a lawyer, they mailed the keys to the bank and walked away.
Of this situation, his son said, “Dad would have made some joke. ‘When I was alive I once stopped you from running away from home, but I taught you to walk away from a home after I was dead.’ Something like that. Only he’d make it come out funny.”
This is not to say that Duane led either a deprived or a worthless life. His estate might have fallen victim to the economic meltdown of 2008, but he himself had worked steadily at increasingly skilled and perhaps even “worthwhile” jobs. He had raised three children who still admired their father. And he seems to have retained his self-aware but not self-deprecating humor to the end.
On the other hand, here was a working man, part of a two-income family, who had kept ahead of off-shoring, outsourcing, and automation by regularly retraining himself. He worked hard for four decades, yet died with no savings, negative equity in his house, and credit-card debt.
Despite his growing set of skills, Duane’s income seems not to have risen significantly over his lifetime. He was, it seems, always close to the edge. Of course, I can hardly claim to have known him well. Perhaps he squandered his money on secret vices, but the likelihood that his income simply stagnated over four decades certainly fit a national pattern.
Between 1971 and 2007, real hourly wages in the U.S. rose by only 4%. (That’s not 4% a year, but 4% over 36 years!) During those same decades, productivity essentially doubled, increasing by 99%. In other words, the average worker’s productivity rose 25 times more than his or her pay.
This was, of course, a bonanza for corporations and for the richest Americans. In 1976, the top 1% of U.S. families held 19% of the country’s wealth. By 2000, they held 40% of it. In those same years, 58% of every dollar of income growth went to the top 1%.
There was, however, one small problem: we Americans sell to one another more than 70% of what we produce. If the majority of American workers were producing more without earning more, who was going to buy all the stuff?
CEOs and financiers were desperate to answer that question, for during those years of high productivity and low wages, immense profits and “returns” kept accumulating in brokerage accounts and banks. But a bank can’t keep its money in the bank. Under the pressure of those swelling piles of capital, the answer they offered to worker-consumers like Duane was: instead of paying you enough to buy what you produce, we’ll lend you the money.
First, they loaned for big-ticket items: cars, homes, college educations; then, through credit cards, for everyday household expenses. As we came to realize after the meltdown of 2008, the ultimate Ponzi scheme of the era would involve bundling and reselling mortgage loans made to people who couldn’t afford houses in the first place.
The answer offered to those who had ever less money to spend was: take out more loans. The folly of lending money to people with stagnant or declining wages may seem obvious now, but like many houses of cards it must have looked solid enough to some back then. Still, let’s not underestimate our major financiers. On a CNBC program, former Federal Reserve Chairman Alan Greenspan was asked why no one had seen the mortgage crisis coming and told the bankers, “You know what? This is going to end badly.”
Greenspan answered: “It’s not that they weren’t aware that the risks were there, I mean I spoke to them. It’s not that the people were dumb. They knew precisely what was going on. The vast majority of them thought that they knew when to get out.”
In fact, creative financial spinning had kept this unbalanced vehicle upright for a remarkably long time. Nonetheless, like any other Ponzi scheme it eventually collapsed, and that’s when Duane’s long recession turned into the world’s Great Recession.
Barbara Garson is the author of a series of books describing American working lives at historical turning points, including All the Livelong Day (1975), The Electronic Sweatshop (1988), and Money Makes the World Go Around (2001). Her new book, just published, is Down the Up Escalator: How the 99% Live in the Great Recession (Doubleday).
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Copyright 2013 Barbara Garson
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