Four years after the official end of the recession, the average American household has recovered only 62.8 percent of the wealth it lost in the crash. The findings come from a new report by William Emmons and Bryan Noeth at the Federal Reserve Bank of St. Louis. That’s in real dollars. All household net wealth has rebounded 114.3 percent from the trough to a record high, but it doesn’t account for inflation or increased population. Adjusted for these factors, the number is well below where it stood in 2006. And the recovery is highly uneven, mostly benefiting the better off with the stock-market boom and saving the big banks.
According to the Fed’s Survey of Consumer Finances, household finances were “severely” affected by the downturn. Median household wealth dropped 39 percent. Among those worst hurt were the young, those with less than a college education, minorities and those carrying heavy debt. With wages largely stagnant, wealth was increasingly dependent on housing, which was in a bubble. In a separate essay by Emmons and Ray Boshara, the importance of household balance sheets to the larger economy is explained. This element was largely discounted by many macroeconomists before the collapse.
It has come as somewhat of a surprise, therefore, that many economists now are calling the Great Recession of 2007-09 a “balance-sheet recession” and that balance-sheet failures of the type described above are seen as important contributors to the downturn and weak recovery.
Only some macroeconomists could have been so blind. Naturally, the recession caused a huge decline in consumer demand, which makes up 70 percent of gross domestic product. Defaults and deleveraging further contributed to the depth of the recession and the slow recovery. The damage to families is substantial, too, affecting the ability of children to attend college and economic mobility. The report pays less attention to how persistent joblessness and federal austerity have made rebuilding household wealth more difficult, particularly for the hardest-hit groups. Nor does it account for intergenerational wealth, a valuable safety net that many lack. Also missing is an examination of how changes in the economy — a hollowed out manufacturing base, increased low-wage services and financialization — have contributed to the household burden. Until all these ills are addressed, we will continue to see a very dysfunctional recovery.
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Today’s Econ Haiku:
Here’s Amazon Fresh
Trying to make Wal-Mart stale
Main Street got thrown out