The Great Recession officially ended more than three years ago, but working families know there’s still something wrong with the U.S. economy. If we want to fix our economy, we first have to understand what’s wrong with it.
What is wrong with the U.S. economy? The short answer is it’s still recovering from the Crash of 2008. This may sound obvious, but it hasn’t stopped some people from pretending our problems began after President Obama was inaugurated in January 2009.
The recession President Obama inherited in 2009 was no ordinary recession—it was triggered by the collapse of an $8 trillion housing bubble. Construction in the housing sector kept the U.S. economy on life support during the Bush years, but this life support was withdrawn almost overnight.
In addition, with the collapse of home prices and pension wealth, more than $12 trillion of household wealth was sucked out of the U.S. economy in 2008, so families had to cut back on spending—especially families that had borrowed heavily during the bubble years.
This cutback in spending was like slamming on the brakes, and it caused the largest increase in unemployment since the Great Depression. President Obama’s stimulus bill stopped the free fall, but it wasn’t nearly big enough to fill a hole of more than 10 million jobs or to make the employment rate bounce back from its 2009 low.
Even today, mortgage debt is still a drag on the recovery as households slowly repair their balance sheets. As many as one-third of all mortgages are for more than the underlying property is worth.
Finally, years of high unemployment have depressed workers’ wages, so they have barely been keeping up with inflation. The income of typical middle-class families has declined since the official end of the Great Recession.
As a result of these factors, middle-class buying power remains too weak to fuel the kind of robust growth we need to lift our economy out of the massive hole it fell into in December 2007.
So we’re stuck in a vicious cycle: When consumers don’t spend enough, businesses don't know whether they'll have buyers for their products, so they hesitate to invest and hire, so unemployment stays high and consumer spending stays weak.
How do we break out of this cycle? We need to restructure underwater mortgages to get underwater homeowners spending again. And unless Congress passes more jobs legislation to put millions of people back to work, it may be years before unemployment comes back down to where it was before the Great Recession.
Unfortunately, Republicans in Congress have obstructed every attempt to clean up the mess that President Bush left behind. They rejected President Obama’s American Jobs Act of 2011, which would have created millions of jobs and avoided the kind of layoffs at the state and local level that have hobbled the recovery.
In short, we have unfinished business cleaning up the mess from 2008. But there was something fundamentally wrong with the U.S. economy long before the Crash of 2008, and this too must be fixed.