Friday, May 31, 2013

Recovery and Depression At the Same Time



Recovery and Depression At the Same Time

If you remained heavily invested in stocks throughout the credit crisis and recovery, you’ve probably recovered all of what you lost.  Although housing prices are still below peak levels, the stock market has been hitting all-time records in recent weeks.  According the Federal Reserve, the net worth of America’s households has made a 99% recovery, and about at an 87% recovery after adjusting for inflation.  In the first quarter of 2007, we had a collective net worth of $66.7 trillion.  During the ensuing two years, we lost $15.3 trillion.  However as 2012 came to a close, our overall net worth was back to $66.1 trillion, and when the Federal Reserve issues data for the first quarter of 2013, America will be able to report that it has fully emerged from the decline.
 
Market Neutral Proposal (1999)
However, when you dig into the numbers, which is what William Emmons and Bryan Noeth do for a living at the St. Louis Fed’s Center for Household Financial Stability, you get a very different picture.[1]  If you run your finger down the rightmost column from rows four to nine in the table below, you’ll observe the hugely uneven shape of the recovery.  While middle-aged, college-educated white and Asian families have recovered (98% recovery after adjusting for inflation), their parents have lagged (84%) and their children have far to go before they recover (63%).




The recovery is even more uneven as you begin to explore the data for African-Americans and Hispanics or look at households with less than a high school diploma (the bottom three rows).  Young educated African Americans and Hispanics are only at 31% of their pre-crisis net worth and families without a high school degree are at a mere 21%.  Take a moment to look across row 9, and imagine the financial damage.  Those families without a high school diploma had an average net worth of $85,000 as the credit crisis began; today there net worth is only $17,800.

Investment strategists and policy makers describe our most recent economy decline as the Great Recession.  When I look at the data, I have to conclude that families in the lower half of our economy are suffering through the Second Great Depression.  These folks had fallen far behind the rest of the country throughout the bull market that characterized the 1980s and 1990s, so their failure to recover in recent years is an American tragedy.

As I’ve written in recent posts, there’s nothing pending in Washington, Raleigh, or most other state governments to address these gross imbalances.  Rather, we’re actually considering tax policies that would be regressive or preserve tax breaks that help the well to do.  And on the expenditure front, those Americans living through the Second Great Depression are largely on their own.





[1] http://www.stlouisfed.org/publications/pub_assets/pdf/itb/2013/In-the-Balance-issue-3.pdf

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