by Don Peck
Copyright © 2011 by Don Peck
All rights reserved.
Published in the United States by Crown Publishers, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York.
www.crownpublishing.com
CROWN and the Crown colophon are registered trademarks of Random House, Inc.
Library of Congress Cataloging-in-Publication Data is available upon request.
eISBN: 978-0-307-88654-5
Jacket design by W. G. Cookman
Jacket illustration by Kevin Orvidas/Getty Images
v3.1
“We are unsettled to the very roots of our being. There isn’t a human relation, whether of parent and child, husband and wife, worker and employer, that doesn’t move in a strange situation.… There are no precedents to guide us, no wisdom that wasn’t made for a simpler age. We have changed our environment more quickly than we know how to change ourselves.”
—WALTER LIPPMANN,
Drift and Mastery: An Attempt to Diagnose the
Current Unrest, 1914
CONTENTS
Cover
Title Page
Copyright
Epigraph
Introduction
1. NOT YOUR FATHER’S RECESSION
2. THE TWO-SPEED SOCIETY
3. TWO DEPRESSIONS AND A LONG MALAISE
4. GENERATION R: THE CHANGING FORTUNES OF AMERICA’S YOUTH
5. HOUSEBOUND: THE MIDDLE CLASS AFTER THE BUST
6. PLUTONOMY: THE VERY RICH IN RECESSION AND RECOVERY
7. UNDERCLASS: MEN AND FAMILY IN A JOBLESS AGE
8. THE POLITICS OF THE NEXT TEN YEARS
9. A WAY FORWARD
Notes
Acknowledgments
About the Author
INTRODUCTION
WHAT LIES ON THE OTHER SIDE OF THE GREAT RECESSION? Nearly three years after the crash of 2008, the American economy has partly recovered, the market has long since rallied, and Wall Street is back from the dead and newly flush. In many of the nation’s most affluent suburbs and in the centers of its most dynamic cities, life has gone back to something like normal. Yet outside these islands of affluence, jobs remain scarce and the housing market devastated. Millions of families have fallen out of the middle class, and millions of young adults have found themselves unable to climb up into it. Throughout much of the country, debilitating weakness lingers on.
This book is about the enduring impact that the Great Recession will have on American life. What we know from three comparable economic calamities—the panic of the 1890s, the Great Depression, and the oil-shock recessions of the 1970s—is that periods like this one deepen society’s fissures and eventually transform the culture. The social changes that occurred in the midst of these other major downturns lasted decades beyond the end of the crises themselves. The Great Recession will prove no different. The crash has already shifted the course of the U.S. economy, and its continuing reverberations have changed the places we live, the work we do, our family ties, and even who we are. But the recession’s most significant and far-reaching ramifications still lie in the future.
“If something cannot go on forever,” the late economist Herbert Stein famously said, “it will stop.” The Great Recession put an end to many unsustainable habits, most notably a decade-long mania for credit spending, fueled by a national housing bubble of epic proportions. But by deflating that bubble—and halting all the optimistic spending that had gone along with it—the recession also laid bare other, much deeper economic trends: the growing concentration of wealth among a tiny sliver of Americans; the thinning of the middle class; the diverging fortunes of different regions, cities, and communities. Indeed, as periods like this one usually do, the recession has accelerated these trends.
When, and for that matter how, will the United States fully recover? These are urgent and complex questions, and in this book I will do my best to answer them. But in truth, societies never just “recover” from downturns this severe. They emerge from them different than they were before—stronger in some ways, weaker in others, and in many respects simply transformed.
Across American society, old, familiar patterns of work, family, and everyday life have been disrupted and remade since the crash. Intense economic forces are remolding the American experience and redefining the American Dream.
• The economic rift between rich Americans and all other Americans is gaping wider as the former recover and the latter do not. And in the recession’s aftermath, a cultural rift has grown, too: for the very rich, in particular, global affinities and global ambitions are quickly supplanting national ties and national concerns. Increasingly, the very rich see themselves as members of a global elite with whom they have more in common than with other classes of Americans. Politically influential and economically powerful, they are becoming a separate nation with its own distinct goals.
• The fortunes of different places also are diverging quickly. High-powered areas like New York, Silicon Valley, and Washington, DC, are putting the recession behind them. Former oases for aspiring middle-class Americans—Phoenix, Tampa, Las Vegas—have been exposed as mirages. Nationwide, newer suburbs on the exurban fringe appear to be in irreversible decline, and the families living in them are stuck and struggling. As a result, middle-class mores and lifestyles are being transformed—and so are the futures of middle-class children.
• Women are fast becoming the essential breadwinners and authority figures in many working-class families—a historic role reversal that is fundamentally changing the nature of marriage, sex, and parenthood. Working-class men, meanwhile, are losing their careers, their families, and their way. A large, white underclass, predominantly male, is forming—along with a new politics of grievance. Both will shape the nation’s character long after the recession is fully over.
• The Millennial Generation, the largest generation in American history and perhaps the most audacious, is sinking. Many twentysomethings will emerge from the Great Recession with their earning power permanently reduced, their confidence dimmed, and their ideals profoundly changed.
Some of the transformations under way are direct results of the recession’s severity. When jobs are scarce, incomes flat, and debts heavy for protracted periods, people, communities, and even whole generations can be left permanently scarred. And some of these changes are products of economic forces that predate the recession but have been strengthened by it. In the end, the crisis cannot be separated from the technological revolution that was under way in the United States for years beforehand: it was in some respects the denouement of that revolution, and the related revolution in global trade. The global economy is evolving at an unprecedented pace, and while some Americans and many U.S. businesses have adapted well, the country as a whole has not. It will remain economically vulnerable and socially divided until it does.
Pinched begins with some history, explaining why the Great Recession stands apart from the downturns that immediately preceded it, and detailing what we can learn from the aftermath of other crashes, further back in America’s history, that more closely recall this one. The heart of the book describes how this period has changed the character and future prospects of different people and communities throughout the country: striving middle-class families, inner-city youth, newly minted college graduates, blue-collar men, affluent professionals, elite financiers. When they linger long enough, hard times and deep uncertainty can greatly alter people’s values, social relationships, and even personal identity. Around the nation, some of those changes are just now becoming visible.
The final section of the book describes how our politics and national character are changing as a result of economic weakness—and how we can recover from this period and build a stronger, more resilient economy an
d society. Part of the answer lies in smarter, more creative, and more decisive government actions. And part lies in a renewed private commitment to civic responsibility and community life. This period of globalization and disruptive technological change, distilled and made toxic by the Great Recession, has left our social fabric tattered. We can restore it, both through public action and through our own daily choices.
We sit today between two eras, buffeted, anxious, and uncertain of the future. But the United States has endured periods like this in the past, and has emerged from them all the stronger. Indeed, America’s capacity for adaptation and reinvention is perhaps the country’s best historic trait. The time is ripe for another such reinvention. I hope that this book, by describing and connecting the problems our society faces and by suggesting some potential remedies, might help inform the pressing question of how we can pull it off.
1
NOT YOUR FATHER’S
RECESSION
THE GREAT RECESSION ENDED, ANY STUDENT OF THE BUSINESS cycle will tell you, in June 2009, a year and a half after it began. It was the decade’s second and more severe recession; the economy shrank by more than 4 percent and more than 8 million people lost their job. The average house fell 30 percent in value, and the typical household lost roughly a quarter of its net worth. The Dow, from peak to trough, shed more than 7,000 points. One hundred and sixty-five commercial banks failed in 2008 and 2009, and the investment banks Bear Stearns and Lehman Brothers ceased to exist.
Even these summary figures are bracing. But this clinical accounting does not capture the recession’s impact on American society—a heavy trauma that has changed the culture and altered the course of innumerable people’s lives. And of course, for many Americans, the recession has not really ended. As of this writing, while parts of the economy are recovering, the unemployment rate is still nearly twice its pre-recession level, housing values are still testing new lows, and millions of families who’d thought of themselves as upwardly mobile or comfortably middle-class are struggling with a new and bitter reality.
The Great Recession will not be remembered as a mere turning of the business cycle. “I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future,” said Mark Zandi, the chief economist at Moody’s Analytics, in 2009. “The collective psyche has changed as a result of what we’ve been through. And we’re going to be different as a result.” By early 2011, mass layoffs had ceased, by and large, but job growth remained anemic. What few jobs have been created since the recession ended pay much less, on average, than those that were destroyed.
In its origins, its severity, its breadth, and its social consequences, the current period resembles only a few others in American history—the 1890s, the 1930s, and in more limited respects the 1970s. As with each of those historic downturns, the Great Recession and its aftermath will ultimately be remembered as a time of both economic disruption and cultural flux—and as the marker between the end of one chapter in American life and the beginning of another.
Inevitably, the rhythm of life changes in countless ways during economic downturns. People drive less, and as a result, both traffic fatalities and total mortality usually decline. They also date less, sleep more, and spend more time at home. Pop songs become more earnest, complex, and romantic. In nearly all aspects of life, even those unrelated to budgets and paychecks, caution prevails.
Some of these changes are mere curiosities, and most are ephemeral, vanishing as soon as boom times return and the national mood brightens. But extended downturns yield larger and more long-lasting changes as well, ones that can be felt for decades. Fewer weddings have been celebrated since the crash, and fewer babies born. More young children have spent formative years in material poverty, and a greater number still in a state of emotional impoverishment brought on by the stresses and distractions of parental unemployment or household foreclosure. Many young adults have found themselves unable to step onto a good career track, and are slowly acquiring a stigma of underachievement that will be hard to shed. Many communities, haunted by foreclosure, have tipped into decline.
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.
WHY 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 c
elebrated 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.