Americans are gloomy about the economy these days. As March and April Gallup polls reveal, 75 percent of the public believe the economy is in recession, and 85 percent say economic conditions are getting worse, not better. Nearly 46 percent believe a depression, “an economic downturn that is much more severe than most recessions and would last several years,” is likely. The Conference Board’s Consumer Confidence Index is at a historic low. Yet, despite widespread economic malaise, little has been done to strengthen the safety net for American families in financial duress. And though some presidential candidates have begun to call for action, evidence suggests that the American people need action now.
Opponents of federal government intervention typically respond to these grim survey results by arguing that Americans remain optimistic about their own personal finances, and that these statistics simply reflect a generalized concern for others. Media coverage of the volatile markets and sub-prime mortgage crisis has poisoned the public mood, they say, but the average family is doing just fine. As a consequence, they contend, there are both political and economic objections to a strong government response in service of individuals in economic trouble.
First, critics contend, ambitious policies targeting families come with serious political risk because even taxpayers anxious about the economy as a whole are unlikely to support government intervention if their own wallets aren’t empty. Second, critics claim that policy interventions on behalf of economically-stressed American families may correct problems that face too few families to merit government action. This over-extension is an economic risk, as it commits scarce resources to “imaginary” problems and creates a precedent that may encourage irresponsible financial behavior in the future.
The claim that people are just worried about their neighbors and not themselves, however, fares poorly against the evidence.
Surveys suggest that economic malaise is not only due to a grim assessment of the economy as a whole, but also to individuals’ perceptions of their own finances. Importantly, expectations of personal economic decline are at their highest in over a decade. As a 2007 Michigan Survey of Consumers reveals, 0ver 25 percent predict that their personal financial situation will decline over the course of the next year; 14 percent expect an unwelcome drop in family income over the course of the next year.
In addition to income concerns, Americans worry about the rising cost of everyday necessities. Virtually every adult consumer says gasoline (97 percent) and food (90 percent) prices have gone up over the past year, and half report that they have less money available for entertainment, recreation and “fun things to do.” The impact of rising prices on financial comfort is inversely related to family income, but Americans across the income spectrum are feeling pinched. A March 2008 Gallup poll reveals that over one-third of those with incomes under $35,000 a year reported that money available for leisure had decreased “a lot,” as compared to 21 percent of those with incomes between $35,000 and $75,000 and 16 percent of those with $75,000 or more. A March 2008 USA Today/Gallup poll reveals that nearly two-thirds (63 percent) report that rising gas prices have caused them financial hardship, suggesting that the pinch of inflation squeezes more than just leisure.
In short: Americans’ economic doldrums reflect not only on a glum assessment of the economy as a whole, but also their own personal experiences of economic stress.
Recent economic data implies that this anxiety is well-founded. The March unemployment rate inched up over 5 percent. The proportion of the labor force in trouble ratchets up to 9 percent if we include not only the unemployed, but also those working part-time involuntarily and those who say they want to work but have given up looking. Long-term unemployment is high, suggesting that a substantial proportion of those who lost jobs in 2007 are having trouble finding new employment, concludes Rebecca M. Blank in a recent Brookings editorial. Growth in wages has not kept pace with inflation, meaning that incomes lag behind costs. Nearly every sector of the labor market has shed jobs.
Low aggregate levels of personal savings suggest that few families have sufficient rainy-day funds to weather the current economic storm. Most Americans’ homes are their largest, and often only, asset. While the percentage of families facing foreclosure is relatively small, a collapse of the housing market will have serious spillover effects on many Americans’ personal finances as their homes lose value and family balance sheets plummet deeper into the red.
Taken together, these data imply that widespread economic anxiety is grounded in real-life experience with financial stress. Yet government action has been slow in coming, and tepid in substance. The recent Federal Reserve bail-out of Bear Stearns signaled to the American populace that the government is willing and able to act quickly and dramatically on behalf of corporations in financial distress. The anemic support for struggling families stands in stark contrast, as the rebate checks approved as part of the economic stimulus package will not arrive in the mail for months, and are likely to be too small and ill-targeted to have a real impact. Policies that could go into effect immediately to provide aid to families in economic trouble—such as extended Unemployment Insurance benefits, increases in food stamps benefits and targeted aid to homeowners facing foreclosure–remain stuck in neutral
As a March 2008 Gallup polls reveals, the economy is now tied with health care for the top issue of concern to the American people, with over 60 percent worrying “a great deal” about both issues. While a sizable majority (61 percent) opposes federal government actions aimed at preventing major Wall Street companies from failing, a slightly smaller majority (56 percent) supports federal government efforts to help prevent homeowners from losing their homes because they can’t afford to pay their mortgages. These data indicate that the public wants government action on behalf of the American family, not the American corporation. Given that they see a government quick to throw a life-line to a corporate giant but slow to offer aid to the everyday citizen, is it any wonder that the share of Americans who believe “the government is really run for the benefit of all people” is at a ten-year low?
Candidates for president have responded with proposals aimed at mitigating the current economic emergency, and at strengthening the safety net as a stop-gap in the event of future crises for American families. These families face serious economic problems today, however, and cannot wait until January 2009. The responsibility for enacting change now lies in the hands of the current Congress and Administration.