Pinched (2 page)

Bewilderment—and, increasingly, a sense of permanent loss—has filled the pages of the nation’s newspapers. “I never thought I’d be in the position where I had to go to a food bank,” said Jean Eisen, a 57-year-old former salesperson in Southern California, to the
New York Times
. But there she was, two years after she’d lost her job, waiting
for the Bread of Life food pantry to open its doors. “I never imagined I’d be unmarried at 37,” wrote one anonymous professional to the advice columnist Emily Yoffe at
Slate
. He’d been jobless for three years and was living with his parents. “I used to think I was a catch,” he wrote. “Every passing month makes me less of one.”

“
There’s no end to this,” said Kevin Jarret, a real-estate agent in Cape Coral, Florida, to the
Times
. His investment properties were long gone, lost in foreclosure, and so were his wife and daughter; hardship is “trying on a relationship,” he said. His house was mostly empty; he’d sold most of his furniture to put food on the table. He’d kept a statuette of Don Quixote, in an irony that did not escape him. “You know, dream the impossible dream.”

Nearly four years after it began, the Great Recession is still reshaping the character and future prospects of a generation of young adults—and those of the children behind them as well. It is leaving an indelible imprint on many blue-collar men—and on blue-collar culture. It is changing the nature of modern marriage, and, in some communities, crippling marriage as an institution. It is plunging many inner cities into a kind of despair and dysfunction not seen for decades.

Not every community or family has been hurt by the Great Recession, of course. Although there are many exceptions, the people and places that were affluent and well established before the crash have for the most part shrugged off hard times; it’s the rest of America that is still suffering. That, too, will be a legacy of this period: by and large, it has widened the class divide in the United States, and increased cultural tensions. In countless ways, we will be living in the recession’s shadow for years to come.

W
HY HAS THE
Great Recession been so severe? And why has its grip on the country proved so stubborn?

Part of the answer stems from the nature of the crash itself. Major financial crises nearly always leave wounds that take many years to
heal. Sickly banks lend sparingly and consumers, poorer, keep their wallets closed, making a strong and rapid rebound all but impossible. One study of more than a dozen severe financial crises worldwide since World War II, published in 2009 by the economists Carmen Reinhart and Kenneth Rogoff, found that on average, the unemployment rate rose for four full years following a crisis (by about seven percentage points in total). Housing values fell for six straight years (by 35 percent). Real government debt rose by an average of 86 percent, fueled by tax shortfalls and stimulative measures. And yet, absent quick and aggressive government action, the pain sometimes lingered longer—as Japan’s “lost decade” in the 1990s and the Great Depression both attest.

The crisis had many culprits, not least among them a financial industry that casually took vast gambles, in the belief (largely correct) that in the event of catastrophic losses, the government would pick up the tab. Yet for more than a decade before the crash actually happened, Wall Street’s actions were well aligned with Main Street America’s dreams and desires. Finance nourished a growing American appetite for debt and fed a way of life that had long since become unsustainable. For a generation or more before the crash, Americans’ spending was untethered from their pay. Two great asset bubbles—the tech bubble of the late 1990s, followed almost immediately by the housing bubble of the past decade—encouraged people to routinely outspend their income, secure in the belief that their ever-rising wealth could make up the growing difference.

Knowingly or not, the Federal Reserve encouraged this practice (and the bubbles themselves) by keeping interest rates low in good times as well as bad, and some economists celebrated a “great moderation” in the business cycle—the success the Fed had in keeping recessions rare, short, and mild over the previous thirty years. But in some respects the Fed was merely delaying the pain of adjustment, and setting up consumers and the economy for a much larger fall.

It is hard to overstate the extent to which
the housing bubble distorted and weakened the U.S. economy. For years and years, too
much money was sunk into houses and too little into productive investments (from 1999 to 2009, according to the economist Michael Mandel, housing accounted for more than half the growth in private fixed assets nationwide; by comparison, business software and IT equipment made up just 14 percent of that growth).
The construction, real-estate, and finance industries, increasingly reliant on one another as the years went by, became grossly bloated, making up almost a quarter of U.S. output in 2006 (up from about a fifth in 1995). Too many high-school students forswore college for construction, and too many top college graduates went to Wall Street. And, of course, too many families bought houses in boomtowns like Phoenix and Las Vegas, and are now stuck in place.

While it was still rising, the housing bubble masked many problems. Most people’s incomes did not grow throughout the aughts (indeed,
the ten years prior to 2009 marked the first full decade since at least the 1930s in which the median household income declined) and employment growth was historically low as well. Housing provided the sense of upward mobility that paychecks did not. That’s one reason the recession has felt even worse than the usual statistics indicate: many Americans, even those who didn’t lose their jobs, lost a decade’s sense of progress. Long deferred, a decade’s disappointment has been concentrated in the past three years.

Housing is by far the largest asset held by most American families, and also their most leveraged investment. Since the market peaked,
more families have lost more of their wealth than at any time since the Great Depression. Nationwide, nearly one in four houses was underwater at the start of 2011. Nearly
one in seven mortgages was in arrears or foreclosure, almost double the rate before the recession began.
And it is by no means clear that housing values have yet hit bottom; near the end of 2010, some analysts believed housing was still as much as 20 percent overvalued nationwide.

Most recessions end when people start spending freely again, and consumer spending has risen since the depths of the crisis. But given the size of the bust, a large, sustained consumer boom seems unlikely
in the near future.
The ratio of household debt to disposable income, about 85 percent in the mid-1990s, was almost 120 percent near the end of 2010, down just a little from its 130 percent peak. It is not merely animal spirits that are keeping people from spending freely (though those spirits are dour). Heavy debt and large losses of wealth have forced spending onto a lower path. Household “deleveraging” is likely to take years to complete.

In the long run, the prescription for the U.S. economy is clear: exports need to grow and consumer spending needs to shift from America to Asia, where savings and surpluses are high. If Asian consumers can be persuaded to save less and spend more, exports can power U.S. growth and job creation while American consumers rebuild their finances and settle into sustainable lifestyles. That transition is essential not just for the health of the U.S. economy, but for the sustainability of global economic growth.

But
as Raghuram Rajan, an economist at the University of Chicago and the former chief economist of the International Monetary Fund, wrote in his recent book about the crisis,
Fault Lines: How Hidden Fractures Still Threaten the World Economy
, the cultural and institutional barriers to spending in Asia are exceedingly high. China’s resistance in 2010 to measures that might substantially depreciate the dollar (making U.S. exports more competitive and Chinese imports less attractive) underscores that point. Meanwhile, Europe and Japan—both major markets for U.S. exports—remain weak. And in any case,
exports make up only about 13 percent of total U.S. production; even if they grow quickly, the base is so small that the overall impact will be muted for quite some time.

One big reason the economy stabilized in 2009 was the stimulus. The Congressional Budget Office estimates that even in the fourth quarter of 2010, the stimulus buoyed output by perhaps 2 percent and full-time equivalent employment by perhaps 3 million jobs, although its impact was by then declining. The stimulus will continue to trickle into the economy for the next year or so, but as a concentrated
force, it’s largely spent. The extension of the Bush tax cuts at the end of 2010 delayed fiscal contraction, and other measures in the bill provided some new stimulus for 2011. But
with federal government debt nearing historic highs, the prospects for further action look limited today. The president’s federal budget proposal for fiscal year 2012 projected a deficit of some $1.6 trillion in 2011. When fiscal contraction begins—as, sooner or later, it must—it will inevitably begin to drag growth down, rather than pump it up.

B
Y THE MIDDLE
of 2010, according to one survey,
55 percent of American workers had experienced a job loss, a reduction in hours, an involuntary change to part-time status, or a pay cut since the recession began.
In January 2011, almost 14 million people were unemployed, and the average duration of unemployment, more than nine months, was longer than it had ever been since the Bureau of Labor Statistics began tracking that figure in 1948.
Unemployment benefits have been extended to ninety-nine weeks in many states, but even so, nearly 4 million people exhausted them in 2010.
In February 2011, the percentage of the population that was employed was at its lowest point since the recession had begun; the apparent improvement in the unemployment rate in the months before that was the result of people leaving the workforce altogether, or deferring entry into it.

According to Andrew Oswald, an economist at the University of Warwick, in the United Kingdom, and a pioneer in the field of happiness studies, no other circumstance produces a larger decline in mental health and well-being than being involuntarily out of work for six months or more. It is the worst thing that can happen, he says, equivalent to the death of a spouse, and “a kind of bereavement” in its own right. Only a small fraction of the decline can be tied directly to losing a paycheck, Oswald notes; most of it appears to be the result of a tarnished identity and a loss of self-worth. Unemployment
leaves psychological scars that remain even after work is found again. And because the happiness of family members is usually closely related, the misery spreads throughout the home.

Especially in middle-aged people, long accustomed to the routine of the office or factory, unemployment seems to produce a crippling disorientation. At a series of workshops for the unemployed that I attended around Philadelphia in late 2009, the participants—mostly men, and most of them older than forty—described the erosion of their identities, the isolation of being jobless, and the indignities of downward mobility. Over lunch I spoke with
one attendee, Gus Poulos, a Vietnam-era veteran who had begun his career as a refrigeration mechanic before going to night school and becoming an accountant. He was trim and powerfully built, and looked much younger than his fifty-nine years. For seven years, until he was laid off in December 2008, he was a senior financial analyst for a local hospital.

Poulos said that his frustration had built and built over the past year. “You apply for so many jobs and just never hear anything,” he told me. “You’re one of my few interviews. I’m just glad to have an interview with anybody,” even a reporter. Poulos said he was an optimist by nature, and had always believed that with preparation and steady effort, he could overcome whatever obstacles life put before him. But sometime in the past year, he’d lost that sense, and at times he felt aimless and adrift. “That’s never been who I am,” he said. “But now, it’s who I am.”

Recently he’d gotten a part-time job as a cashier at Walmart, for $8.50 an hour. “They say, ‘Do you want it?’ And in my head, I thought, ‘No.’ And I raised my hand and said, ‘Yes.’ ” Poulos and his wife met when they were both working as supermarket cashiers, four decades earlier—it had been one of his first jobs. “Now, here I am again.”

Poulos’s wife was still working—as a quality-control analyst at a food company—and that had been a blessing. But both were feeling the strain, financial and emotional, of his situation. She commutes
about a hundred miles every weekday, which makes for long days. His hours at Walmart were on weekends, so he didn’t see her much anymore and didn’t have much of a social life.

Some neighbors were at the Walmart a couple of weeks earlier, he said, and he rang up their purchase. “Maybe they were used to seeing me in a different setting,” he said—in a suit as he left for work in the morning, or walking the dog in the neighborhood. Or “maybe they were daydreaming.” But they didn’t greet him, and he didn’t say anything. He looked down at his soup, pushing it around the bowl with his spoon for a few seconds before looking back up at me. “I know they knew me,” he said. “I’ve been in their home.”

A 2010 study sponsored by Rutgers University found a host of social and psychological ailments among people who’d been unemployed for seven months or more: 63 percent were suffering from sleep loss, 46 percent said they’d become quick to anger, and 14 percent had developed a substance dependency. A majority were avoiding social encounters with friends and acquaintances, and 52 percent said relationships within their family had become strained. Like other studies of long-term unemployment, the report describes a growing isolation, a warping of family dynamics, and a slow separation from mainstream society.

There is unemployment, a brief and relatively routine transitional state that results from the rise and fall of companies in any economy, and there is
unemployment
—chronic, all-consuming. The former is a necessary lubricant in any engine of economic growth. The latter is a pestilence that slowly eats away at people, families, and, if it spreads widely enough, society itself. Indeed, history suggests that it is perhaps society’s most noxious ill.