The Great Recession's stranglehold
It has been the most egalitarian of all the 11 recessions since World War II. In various ways, it has touched every social class through job loss, pay cuts, depressed home values, shrunken stock portfolios, eroded retirement savings, grown children returning home -- and anxiety about all of the above. The Great Recession (as it is widely called) has changed America psychologically, politically, economically and socially. Just how will be examined and debated for years. Here comes a booming cottage industry of scholars, pollsters and pundits.
A new study from the Pew Research Center, based on an opinion survey in May of nearly 3,000 Americans and an exhaustive evaluation of economic data, provides a preview. Not surprisingly, it confirms that Americans have become more frugal; 71 percent say they're buying less expensive brands, 57 percent say they've trimmed or eliminated vacations. Life plans have changed; 11 percent say they've postponed marriage or children, while 9 percent have moved back with parents.
One interesting finding is that the elderly have been relatively sheltered. Adults 65 and older, according to Pew, "are much less likely than younger age groups to have cut back on spending, loaned or borrowed money, had trouble paying for medical bills or housing, or had to increase their credit card debt." For example, 28 percent of Americans under 65 borrowed money from family or friends; only 5 percent of those 65 and older did. Confidence in retirement savings dropped most sharply for younger Americans (including those 50 to 64), not those 65 and over.
But other sanctuaries from the Great Recession have been scarce. Previous recessions have focused their hurt on the young and unskilled. This remains true. Almost one-fifth of workers 16 to 24 were unemployed at the end of 2009, a near doubling since late 2007. Among those without a high school diploma, joblessness was 50 percent higher than the average. Still, the economic and spiritual damage extends much further, for many reasons.
First, the huge job loss: By most measures (length of unemployment, permanent firings vs. temporary layoffs), joblessness is the worst since World War II. Unemployment among college graduates roughly doubled, to about 5 percent. (Though today's unemployment rate has not reached the 10.8 percent level of late 1982, that mostly reflects the 1980s' younger workforce, according to studies by John Schmitt, Dean Baker and David Rosnick of the Center for Economic and Policy Research. Younger workers change jobs more often and have higher jobless rates.)
Second, pay cuts: These have affected almost a quarter of workers, including nearly a fifth of those with family incomes exceeding $75,000. Some workers also have had to take unpaid leave or part-time work.
Third, the loss of housing and stock market wealth: This decline (more than 25 percent at its peak on an annual basis) has been concentrated among higher-income Americans, who own a disproportionate share of the wealth. A reverse wealth effect has gripped the upper middle class. Feeling poorer, people have saved more and spent less.
Finally, children: All those jobless college grads and crashing kids must alarm their parents. Only 45 percent of Americans believe their children will enjoy higher living standards, down from 61 percent in 2002. Pessimism is greatest among those with family incomes over $75,000.
One paradox identified by Pew is that some groups that "have been hardest hit by this recession (including blacks, young adults and Democrats) are significantly more upbeat than their more sheltered counterparts (including whites, older adults and Republicans) about a recovery." For instance: Blacks suffer higher unemployment than whites (15.4 vs. 8.6 percent in June) but believe more strongly that the recovery has begun (47 to 38 percent). Pew's explanation is politics. With a Democratic administration, Democrats are more upbeat and Republicans more glum.
Another theory -- more powerful, I think -- is that the Great Recession, though jarring to almost everyone, has been most disruptive and disillusioning to those who were previously the most protected. It punctured their cocoons so unexpectedly that they became more cautious and fearful, whereas those who even in good times faced job loss and income shifts (many blacks, the young and the poor) were less surprised. One legacy of the Great Recession is that insecurity and uncertainty have gone upscale. People feel more exposed. They tend to plan for the worst rather than hope for the best. Their reluctance to make major purchase commitments (a new car or home) validates their pessimism by retarding recovery.
Is this a passing mood or an enduring shift? Most Americans, Pew says, believe adverse economic changes will be temporary. Optimism will return. That depends on how quickly -- and whether -- the Great Recession releases its stranglehold on the American psyche.