This month marks the 10th anniversary of the Great Recession’s end. It was the worst U.S. economic disaster since the Great Depression and we came perilously close to repeating that bleak history.
Afterward, Seattle and a few other cities embarked on a great, gaudy spree, almost as if the catastrophe had been a speed bump. These fortunate locales benefited from strong, diverse economies — and especially from their connection to tech. That was the fastest-growing sector for years after the recession. Another gift was the “back to the city” movement, with talented young people moving to quality urban centers and drawing companies with them.
Beyond these cities, where the dark fields of the republic rolled on under the night (more apologies to F. Scott Fitzgerald), the recovery and expansion were slow and uneven. So much so in the early 2010s that some wondered if we were recovering at all, or about to slip back into a fresh downturn.
It took until 2014 for national employment to reach its prerecession levels. Even then, a “jobs gap” remained — the employment that would have been created to serve newcomers to the workforce, but was stifled by the downturn. That gap didn’t close until 2017.
It took a decade for median household income to return to its 2007 level. For the average American, the collapse caused a lifetime income loss of $70,000, according to a report from the San Francisco Fed.
But that number is a bit misleading. Buoyed by a long bull market and Republican tax cuts, the richest more than recovered financially. Median wealth for the top 10% increased nearly 27% from 2007 to 2018. Other income groups didn’t do nearly as well; the lowest were stagnant until recently.
The bursting of a spectacular housing bubble triggered the recession. Recovery was slow in this critical area, too.
The proportion of homeowners who owed more on their mortgages than the value of their houses (“underwater”) fell below 10% in late 2017, according to Zillow. That compared with nearly 30% in 2010. Still, 4.4 million remained underwater seven years later.
Homeownership — the largest source of wealth for most households — stood at 64.4% this past year. But that rate is below the 69% level of 2004. (Pricey King County’s rate was about 61% in 2017, the most recent year available; Washington state was at about the national average).
Public finances in many states were mauled by what the Pew Trusts calls a “lost decade.”
“Like a family that suffered a job loss or pay cut during the recession, states missed out on billions of dollars in tax revenue,” the Pew report says.
It continues, “ … even though total state tax revenue recovered nearly six years ago from its losses in the downturn, many states are still dealing with fallout from the tough choices they had to make to fill budget holes during the recession, including recent strikes by teachers who went years without pay raises, higher tuition at public universities, complaints from local governments living with less state aid, mounting repair bills for public infrastructure, and smaller state work forces.”
Washington and Oregon recovered well, but nearly half the states are spending less than a decade ago.
To be fair, not all of this can be blamed on the recession and slow recovery.
For example, Arizona saw some of the most severe budget reductions, including a 23 percent decline in state aid to local governments. Part of the reason for early budget tightening was Arizona being ground zero for the housing crash — lawmakers even sold legislative buildings and other government properties. But with the state recovered, they insisted on hundreds of millions of dollars in tax cuts (although they are buying back the buildings).
Indeed, the tax-cut ideology in that red state dates back to 1991, even though the population and its costs keep rising. As a result, the commons suffer. For example, Arizona has some of the worst education funding in America, and no McCleary court case to improve things.
Back to the national view: This expansion is now tied with the 1990s boom as the longest on record. At 3.6 percent in April, the national unemployment rate is the lowest since the late 1960s.
Unfortunately, the good times face that blinking red light of expiration. And one of the biggest reason is self-inflicted wounds.
Worse, as the Los Angeles Times pointed out, “What started out two years ago as an effort by President Trump to wring better terms from China on the nuts and bolts of foreign trade now threatens to become a far wider and more ominous confrontation.”
Beyond the threat of a cold or hot war, we face the real prospect of the two largest economies on the planet “decoupling” from their long and intimate relationship, with serious consequences for both.
Trump scuttled the Trans-Pacific Partnership and has antagonized allies, too. The latest self-inflicted crisis is threatening Mexico with tariffs if it doesn’t stop migrants from moving north to the U.S. border. The president doesn’t seem to understand how closely intertwined U.S.-Mexico supply chains are, especially for the auto industry.
Drip, drip, drip … even with the momentum of this long expansion, even with the untrustworthy daily movements of the stock market, eventually these little leaks let in a flood. No wonder bond investors are so bearish about the short-term.
Then the question becomes whether we face a mild recession? Or something more grim.