In 2008 when America's economy tanked, the U.S. took down most of the developed world with it, particularly the Euro countries that had developed taste for made-in-America casino capitalism.
Europe is still reeling from that and so is the United States or, at least, the bottom 90% of the American people. Yet their government is strangely enough not responding to their plight. That's because their government, the men and women they elected, are instead serving the small minority at the very top.
U.C. Berkley prof. J. Bradford Delong presents an interesting take on where America went wrong and how the Great Recession of 2008 has actually been much worse than the Great Depression of 1929.
Unless something goes unexpectedly wrong in 2014, the level of real per capita GDP in the United States will match and exceed its 2007 level. That is not good news.
To see why, consider that, during the two business cycles that preceded the 2007 downturn, the US economy’s real per capita GDP grew at a 2% average annual pace; indeed, for a century or so, the US economy’s real per capita GDP grew at that rate. So US output is now seven years -- 14% -- below the level that was reasonably expected back in 2007. And there is nothing on the horizon that would return the US economy to -- or even near -- its growth path before the 2008 financial crisis erupted. The only consolation -- and it is a bleak consolation indeed -- is that Europe and Japan are doing considerably worse relative to the 2007 benchmark.
The US economy’s annual per capita underperformance in 2014 will thus amount to $9,000. That means $9,000 per person per year in consumer durables not purchased, vacations not taken, investments not made, and so forth. By the end of 2014, the cumulative per capita waste from the crisis and its aftermath will total roughly $60,000.
If we project that forward -- with nothing visible to restore the US to its pre-2008 growth path, at the annual 6% discount rate we apply to equity earnings, the future costs are $150,000 per capita. If we use the 1.6% annual real discount rate at which the US Treasury can borrow via 30-year inflation-protected Treasuries, the future per capita costs are $550,000. And if we combine the costs of idle workers and capital during the downturn and the harm done to the US economy’s future growth path, the losses reach 3.5-10 years of total output.
That is a higher share of America’s productive capabilities than the Great Depression subtracted -- and the US economy is 16 times larger than it was in 1928 (5.5 times larger in per capita terms). So, unless something -- and it will need to be something major -- returns the US to its pre-2008 growth trajectory, future economic historians will not regard the Great Depression as the worst business-cycle disaster of the industrial age. It is we who are living in their worst case.
Delong questions, if it's meltdown for mainstream America, why aren't the political classes mobilizing to act?
One would think that America’s leaders would be clambering to formulate policies aimed at returning the economy to its pre-2008 growth path: putting people back to work, cleaning up underwater mortgages, restoring financial markets’ risk-bearing capacity, and boosting investment.
But no. Part of the reason is that, at the top, there is no crisis. According to the best estimates, the income share of America’s top 10% probably crossed 50% in 2012 for the first time ever, and the 22% income share that went to the top 1% was exceeded only in 2007, 2006, and 1928. The incomes of America’s top 10% are two-thirds higher than those of their counterparts 20 years ago, while the incomes of the top 1% have more than doubled.
His conclusions are that those who are not hurting like things the way they are and those who are invested with the powers to change things work for those who like things the way they are.