Saturday marked the 10th anniversary of Lehman Brothers filing for bankruptcy, a failure that catalyzed the financial crisis. Over the past week, I’ve read some of the retrospectives. Though the looking back summons those days a decade ago when a replay of the Great Depression loomed as a possibility, I am drawn mainly to the reporting on the economy over the years that followed.
In that connection, an analysis led by researchers at the Federal Reserve Bank of San Francisco grabbed my attention more than perhaps anything else I have read. It finds that the crisis cost every American about $70,000 over the course of our lifetimes.
The reason ties to the hit to the economy’s capacity to produce goods and services in the aftermath of the crisis.
“The size of the U.S. economy, as measured by gross domestic product (GDP), adjusted for inflation, is well below the level implied by the growth rates that prevailed before the financial crisis and Great Recession a decade ago,” write the researchers, who add that “the level of output is unlikely to revert to its pre-crisis trend level.”
The economies in the U.K. and across Europe also remain well below the levels implied by rates of growth before the crisis, they note.
So how to make sense of the rosy headlines about the economy that tend to dominate the news nowadays? Clarity on that comes from David Leonhardt at the Times, who on Sunday explained how statistics like GDP and the Dow Jones Industrial Average describe “the experiences of the affluent” more than they do the economy overall.
For example, stocks are now worth nearly 60% more than at the outset of the crisis in 2007, but stocks also tend to be owned by the wealthy, notes Leonhardt. Most Americans depend for wealth on the value of their homes.
“That’s why the net worth of the median household is still about 20% lower than it was in early 2007,” he writes. “When television commentators drone on about the Dow, they’re not talking about a good measure of most people’s wealth.”
Similarly, the unemployment rate reported by the U.S. government does not include people outside the labor force, including people who are not looking for work. It’s a quirk of history that ties to the measure’s creation in 1878, when the statistician who conceived it “wanted the count to include only adult men who ‘really want employment,’” notes Leonhardt.
The analysis further shows that while the cumulative change in GDP and income is indeed up for the wealthiest 10% of the population since 2000, it has barely budged for the remaining 90% of earners.
That leads to the third piece that stays with me. It’s by Neil Irwin in the Times, who notes that the policies that sought, above all, to stabilize the banks and keep capital flowing during the crisis succeeded in containing the crisis, set the stage for the expansion that followed, and improved the ability of regulators to identify and address risks on the balance sheets of banks.
At the same time, the crisis, and particularly the bailout of the banks, probably contributed to the populism that has ensued. The problems had been there all along, “but it was the experience of the crisis, and the sense among Americans of all ideological dispositions that they were being asked to foot the bill for someone else’s mistakes… that helped make those long-simmering problems boil over,” Irwin writes.