The Valley News of Lebanon, N.H., June 19, 2012
Many theories have been advanced to account for the fitful nature of the current economic recovery, but data included in the Federal Reserve’s recently released Survey of Consumer Finances probably do the best job of explaining it. Plain and simple, the financial crisis devastated the middle class.
In 2010, the median American family -- one wealthier than half the nation’s families and poorer than the other half -- had a net worth of $77,300, as compared with $126,400 in 2007, according to the Fed. To put that in perspective, the net worth of the median family returned to the level of the early 1990s.
The crash in housing prices accounted for 75 percent of the decline, which is not surprising given that middle class wealth is concentrated in housing. And while the median amount of home equity was dropping from $110,000 in 2007 to $75,000 in 2010, median family income was also falling, from $49,600 in 2007 to $45,800 in 2010. (All these numbers are adjusted for inflation.) The decline in family income, of course, predated the financial crisis, but the Great Recession certainly accelerated that distressing trend.
The news about savings and debt was little better. The number of families saving anything during the previous year dropped to 52 percent from 56.4 percent. While the percentage of households that had any debt fell by 2.1 percentage points, 74.9 percent
In short, families with incomes in the middle 60 percent of the population were harder hit over the three-year period than either the wealthiest or the poorest, the latter group being cushioned by increased government aid during the recession.
What kind of inferences for the recovery can be drawn from these numbers? One is that while some kinds of wealth have rebounded recently, housing prices remain mired and with them middle class prospects. A second is that middle class families’ confidence in the future has been shaken badly and that uncertainty has taken its place. It may be a long time before a sense of economic security is restored, just as many survivors of the Great Depression bore the psychological scars long after their material prospects soared following World War II. In short, it’s not exactly a surprise that demand for goods and services is lagging, and the recovery along with it.
In fact, there may be no quick fix. But a few things need to be addressed in the long term. Among them is the fact that while the number of new jobs created is important, it is no more important than the quality of those jobs. One measure of quality is that they pay well enough to support a family in decent fashion, with the prospect that ordinary people cannot only maintain a firm footing on their current rung but also advance up the economic ladder. That is an issue we would like to hear addressed in detail during the presidential campaign.
It’s also important that when the housing market does come back, homeowners and homebuyers view their properties as places to live, not primarily as an investment that can be quickly flipped for a profit. We’ve been down that road, and it is littered with foreclosure signs.
And finally, income inequality needs to be mitigated. Between 1979 and 2007, the share of national income earned by the middle class shrank from 50 percent to 43 percent. That is not a sustainable path for the nation’s economic or social well-being.