Raising the debt ceiling is a man-made crisis amenable to straightforward policy remedies. Political will is all that is lacking. Not so the economic crisis that our preoccupation with fiscal policy has temporarily obscured. Two major reports underscore both the depth of our economic woes and our increasing social divisions.
The IMF recently conducted a comparative study of ten post-war economic recoveries seven quarters after the business cycle trough, or recession’s end. Its findings for the United States are stunning. For employment and household finances, the current recovery is the weakest since the end of World War Two. For the business and financial sectors, it’s the strongest. The banks, recipients of lavish public funds and guarantees during the meltdown, are reporting a rapid recovery from their lows in profits, loan charge-offs, and equity-to-asset ratios. Meanwhile, growth in employment, disposable personal income, personal savings and consumption, and total GDP all anguish. Needless to say, investment in structures—residential and non-residential—comes in dead last. Were it not for a strong performance in equipment, software, and exports, the current recovery would barely have a pulse. The IMF study does nothing to weaken the increasingly credible thesis that downturns induced by financial crises differ structurally from those in normal business cycles.
At the same time that the business and financial sectors are becoming decoupled from employment and household balance sheets, gaps among different parts of our population are growing. A report just out from the Pew Research Center shows that while the median net worth of all U.S. households declined by 28 percent between 2005 and 2009, the figure was 53 percent for African Americans and 66 percent for Hispanics. And these percentages mask an even more troubling reality: The assets of black and Hispanic households have just about been wiped out. Median net worth in black households stands at $5677; in Hispanic households, $6235. No doubt this reflects the collapse of the housing market, which has hit areas of Hispanic population growth with special ferocity. But it reflects something else as well—high levels of unemployment. According to the most recent BLS report, the jobless rate stands at 11.6 percent for Latinos and 16.2 percent for blacks, compared to 8.1 percent for whites. Using savings to finance necessary expenses, which most unemployed households are forced to do, rapidly depletes modest asset accumulations in a hurry. Overall, the disparity in household wealth has risen to the highest level on record, wiping out two decades of progress for minority householders.
This painfully slow recovery is rending the fabric of American society. In turn, these growing socio-economic gaps are contributing to the rising polarization of our politics and declining trust in government—developments that will make it even more difficult to forge agreements on the policies we’ll need to get out of this deep hole. No doubt adverse trends in the global economy are making things even worse. But in the end, our economic crisis is a governance crisis. The stalemate over the debt ceiling is a symptom of this systemic fact.