America’s economy is improving, but the public mood is a lagging indicator. A Pew poll in late August found that Americans recognize that the job market has strengthened. Although 58 percent of respondents said “jobs are difficult to find, ” that was better than 65 percent in April and a peak of 85 percent in March 2010. Similarly, 33 percent of respondents said there are “plenty of jobs available,” up from 27 percent in April. But these positive developments barely dented public pessimism. A hefty 56 percent of respondents said their incomes were falling behind “the cost of living.” Only 5 percent said they were getting ahead. The rest were just “staying even.”
We have a peculiar prosperity. The economy is escaping the confines of the Great Recession; auto sales now exceed 16 million annually, the highest since 2006. But people don’t feel reassured. They’ve lost confidence in the future. Americans feel roughed up by the economy, and their fears aren’t fading quickly.
Some of this reflects the anger and anguish of the long-term unemployed and underemployed. Only 61 percent of experienced workers (at least three years with the same employer) who lost their jobs from 2011 to 2013 were re-employed by early 2014, reports the Labor Department. Naturally, they mistrust the future. But the effect extends well beyond this discouraged cadre.
People not only remember the economic cataclysm. They’re still suffering the aftershocks in lower incomes and wealth, as the tables below show. The figures come from the Federal Reserve’s 2013 Survey of Consumer Finances (SCF). Every three years, the Fed interviews thousands of households (6,026 in 2013) to draw a detailed picture of Americans’ finances. From this mass of data, I’ve plucked 12 figures that demonstrate the enduring impact of the economic crisis.
The first table provides annual pretax income from wages, interest and the like. The left-hand column shows the income of the median family, the one exactly in the middle of all families. The second column shows the income of a group I call “the solid middle class.” If the population is divided into fifths, they’re the second fifth from the top: poorer than the richest 20 percent of Americans but richer than the other 60 percent. Though comfortable, they’re not awash in money. The table has three years: 1989, the SCF’s base; 2007, the economy’s peak before the financial crisis; and 2013. All figures are adjusted for inflation and are given in “2013 constant dollars.”
|Median Family||Solid Middle Class|
What do the numbers say?
For starters, they dispute the conventional wisdom that most Americans’ incomes stagnated before the Great Recession. Only the richest supposedly got ahead. Not so. Gains were small annually but significant over longer periods. From 1989 to 2007, income rose 14 percent for the median family and 15 percent for the solid middle family. But the numbers’ second message is devastating: The Great Recession hurled incomes all the way back to the late 1980s and early 1990s. Median family income in 2013 was almost the same as in 1989. For the solid middle families, 2013 incomes were only slightly higher. Joblessness, underemployment, short hours, stagnant wages all took a toll.
The second table shows these groups’ net worth: assets (homes, stocks, bonds, retirement savings) minus debts (mortgages, auto loans, student loans, credit card debt). The story is the same. Until 2007, net worth rose gradually. Then it crashed and fell to late 1980s or 1990s levels. Lower housing prices especially hurt.
|Median Family||Solid Middle Class|
This is the true middle-class squeeze: People’s expectations about their living standards were set in the early 2000s, while their incomes and assets are stuck at levels 15 to 20 years earlier. The huge gap isn’t rapidly erased, even by a revived economy. Of course, there are large variations among families. Also, the upper middle class and rich fared much better. In 2013, the median income of the richest 10 percent was $229,600, says the SCF. Although that was 1 percent below its 2007 peak, it was 22 percent above its 1989 level.
Still, the gap applies to countless middle-class Americans. Having been roughed up, they face years of catch-up to get to where they once were. They feel poorer because they are poorer. They feel less secure because they are less secure. The crisis’s severity — and the fact that it surprised most “experts” — shocked them. The large income and wealth losses compounded their sense of vulnerability. Their stubborn caution makes forecasting the economy’s future harder.
The financial crisis and Great Recession have powerfully affected the national psyche — for the worse. We will be living with that legacy for a long time.
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