The Great Recession's Pessimism Trap
As often as not, I devote a column to the Census Bureau's annual report on "Income, Poverty and Health Insurance Coverage." It's a statistical benchmark that traditionally measures our progress - or lack of it - in improving the economic well-being of Americans. But the report for 2010, which was released last week and received a huge amount of coverage, fails miserably. It understates the bad news.
Not that the findings are upbeat. Quite the opposite: They're grim. Median household income (the income precisely in the middle of the distribution) was $49,445, down 6.4 percent from 2007 ($52,823), the recent peak, and the lowest since 1996 ($49,112). Comparable declines have occurred in the past; for example, the drop from 1979 to 1983 was 5.7 percent. All these figures are expressed in inflation-adjusted 2010 dollars.
The official poverty rate tells a similar story. It was 15.1 percent in 2010, meaning that a little more than one-seventh of the population has pretax income under the government poverty line ($22,314 for a four-person household). That's about three percentage points higher than in 2006 (12.3 percent) and, more tellingly, about 10 million more people: 46.2 million vs. 36.5 million. Depressing.
But again, not unusual. The poverty rate hit 15.1 percent in 1993 after the 1990-91 recession and was 15.2 percent in 1983 after the brutal economic downturn of 1980-82.
From just the numbers, the message seems to be that we've been here before. Recessions take a terrible toll. It's a familiar story. But I don't think it's true - the Great Recession is different - and I suspect most Americans agree. The standard trends measured by Census (income, poverty, health insurance) are incomplete. That's not Census's fault. Still, they don't fully convey the recession's effects on Americans' welfare and psychology.
Excluding the 1980-82 slump, recessions since World War II have been compartmentalized events. Suffering and hardship have concentrated on a small part of the population: the workers who lost jobs, and their families; business owners whose firms failed. Most Americans continued as before. They read about the recession but didn't experience it. Peak unemployment usually didn't exceed 8 percent (the exceptions: 9 percent for the 1973-75 recession and 10.8 percent for 1980-82).
No more.
Even for millions of Americans with jobs, there's a palpable sense of loss and anxiety. One reason is the devastating housing slump, subtracting huge amounts from people's wealth. About half of households also own stocks through retirement accounts, mutual funds or ordinary brokerage accounts. The market's daily gyrations inflict a feeling of endless vulnerability.
Perhaps as powerful are parents' fears for their children. The jobless rate for young workers (ages 20 to 24) is always high - the young are restless and move between school and jobs - but now it is an astronomical 14.8 percent. Getting started is hard; studies suggest that young workers who experience intermittent work and low wages in a harsh economy may suffer permanently depressed lifetime earnings.
What's also changed is the nature of unemployment. Through the early 1980s, many of the jobless were on temporary layoffs, as economists Steven Davis of the University of Chicago and Till von Wachter of Columbia University note in a paper for the Brookings Institution. These workers collected unemployment benefits; most expected to be recalled. They didn't feel discarded.
Now, most dismissed workers need new jobs, with the likelihood of lower earnings. And many of the employed worry. The Gallup poll regularly asks workers whether they fear cuts in hours, wages and benefits - or being fired. In August, the responses were, respectively, 30 percent (hours), 33 percent (wages), 44 percent (benefits) and 30 percent (dismissal). Considering some overlap, probably half felt threatened.
A fatalistic sense that the economic slump will never end is often present, as it is now, in the early stages of recovery. Sometime in the future, we may view today's melancholy similarly. Maybe we're caught in a pessimism trap. But past recessions often had benefits. The 1980-82 downturn was induced to squelch inflation - and it did. Consumer price increases fell from 13 percent in 1980 to 4 percent in 1982. Any benefits from the Great Recession are well hidden.
The Census study of income and poverty is often called "the nation's economic report card." Paradoxically, this year's low grades actually overstate our performance. History suggests that our grades will improve as the economy improves. Perhaps. But if this slump is different - as it seems - next year's grades could be worse.
