The financial crisis supposedly “changed everything.” But it really hasn’t.
Six years after the recession started, five years after the crash, and four years after the recovery began, the share of the country with a job has declined by more than 7 percent. And yet … corporate profits are crushing, again. The stock market is setting weekly nominal records, again. Home prices are rising, again. Finance is flush, again.
The financial crisis supposedly “changed everything.” It really hasn’t. Why not?
Here’s where I feel like I’m supposed to tell you to get mad, and how to get mad. But the thing is … get mad at what, exactly? At whom? The lesson of this story — and of the graph that leads this piece — isn’t as simple as: There is one thing to blame, and we know what it is. It isn’t as simple as: Washington cares more about bank profits than bankrupt people.
The frustrating lesson is: Lots of people messed up inside of a messed-up system.
Take, for example, the protagonist of the U.S. government’s recovery efforts: the Federal Reserve. The Fed’s go-to weapons — cutting short-term interest rates to zero and quantitative easing (giving the banks cash for their less liquid assets) — accomplished many important goals. It not only averted a meltdown, but also set the stage for record-breaking years of profits. Meanwhile, median household incomes are still declining. Unemployment is still more than 7 percent.
This is a failure of Fed leadership. It’s absurd for Bernanke to focus on historically low inflation while the employment-population ratio continues to drop. But it’s the system, too. The Fed is not designed to easily and immediately put money in the hands of households. A first-order effect of QE is that banks have more dollars to lend. A second-order effect is that families and firms that want loans (for mortgages, for offices) will get better terms. A third-order effect is that people with money will be more confident in the economy when they think the Fed has its foot firmly planted on the accelerator. All of this should help typical, cash-strapped families. Richer companies can hire more people and good feelings breed good feelings. But the Federal Reserve doesn’t write checks to households. It doesn’t drop money from helicopters on Sun Belt exurbs.
The federal government can “drop money” into bank accounts. In fact, it did. It’s called a tax credit. It was a part of the 2009 stimulus — a huge, historic, essential effort to help American families, directly. But the stimulus was also way too small. Whose fault was that? The White House, for being so famously wrong about how bad unemployment would be? The Bureau of Economic Analysis, for being so famously wrong about how fast the economy was shrinking? Republicans, for rejecting every follow-up effort to stimulate the economy? Washington, for clearly and repeatedly preferencing the values of the rich over the poor?
The answer is … yes. They were all all fault. For different reasons. Washington’s fiscal policy has been a tactical, statistical, philosophical, and moral failure.
But once again, there are personal failures and systemic failures. The Republican Party’s attention to the debt over the last five years — interrupted occasionally by threats to default on it — has helped starve state budgets, leading to more than 700,000 jobs being cut from total government since the recession began. But the never-ending election cycle that dominates Washington turns representatives from both parties into telemarketers for the rich, depriving electeds of feedback from their poorest and neediest constituents. Long-term unemployment might be the most important economic crisis of the next few years. On Capitol Hill, it’s literally difficult to find people who care about it. Their attention is simply … elsewhere.
In the opening months of the crisis, the tools and attention of the economy’s protectors were focused on the banking system — whose failure would have precipitated an economic meltdown for everyone. But soon, the banks were recovering and Americans weren’t. We could have done more. We should have. We didn’t. It was a failure of bad thinking inside a bad system.