There’s no need to posit a “silent assassin” to explain why the recovery is weak. You just need to look at what the bursting of the housing bubble did to the economy. As the economist Dean Baker has pointed out, if you couple the negative impact of the wealth effect due to the housing bubble bursting with the steep decline in residential investment once the bubble burst, you end up with a huge shortfall in demand. Debt exacerbates this, but the core problems are weak demand and the fact that our monetary and fiscal policies haven’t done enough to strengthen it. People are simply much less rich than they were—or thought they were. The average American household lost almost twenty-five per cent of its wealth during the crash. And incomes are not rising briskly enough to offset this. In fact, during the past decade median income fell in real terms.
By 12:57 PM ET, 11/16/2011