Five Years after the Financial Meltdown: The State of the US Economy and College Grads

The LA Times has provided a good detailed analysis of where we stand five years after the fiscal meltdown of 2008. The overall takeaway is that the richer are getting richer, and almost everyone else is suffering.  One important point is how much wealth and employment was lost during the Great Recession: “Over 19 months, the Great Recession erased trillions of dollars of wealth, destroyed 8 million jobs and robbed tens of thousands of their homes. More than half of adults lost a job or saw a cut in pay or hours, and almost everybody's wealth fell.” This incredible loss of wealth and income has been followed by an uneven recovery: although household net worth has increased to a record $81.7 trillion, this wealth has not been shared evenly.

One reason why the rich have gotten richer is that after the last stock market dive, people with extra cash were able to re-invest in stocks: the result is that “household assets in equities have more than doubled since 2008 to $20.6 trillion earlier this year.”  In fact, the wealthy have profited from the financial crisis: “Moreover, for the wealthy, a downturn or a slow recovery can provide advantages: With real interest rates near zero, the price of assets — investment property, securities, luxury goods and so forth — remains relatively cheap.”  Thus, as everyone saw their income and wealth decreased, if not wiped out, the rich were able to buy low and sell high. 

In terms of employment, all of the jobs that were lost during the Great Recession have returned, but they are different jobs:  “As of May, total employment in construction and manufacturing, where pay is relatively high, was down more than 3 million compared with before the recession. By contrast, restaurants, temporary help firms and retail outlets have added 3 million jobs, making them three of the fastest-hiring industries during the recovery. But their average hourly pay ranges from $12.35 for restaurants to $16.96 for retail, compared with $24.72 for manufacturing and $26.59 for construction.” In what is now called the polarized economy, there has been some job growth at the top, but most of the new jobs are low-paying service work.  As middle-class jobs are eliminated, middle-income families are still recovering from a loss of over two trillion dollars in home equity.  The end result is that the median household net worth is now lower than what it was in the late 1990s. 

For recent college graduates, the news is ever worse: “Underemployment has become a vexing problem. Four out of 10 recent college graduates have jobs that typically do not require a bachelor's degree, and many of the positions don't pay much. And the job market is a lot worse for those without a bachelor's degree.”  If we add together the underemployment and employment rates for recent college graduates, it is now over 50%, and of course, these young people hold a high level of student debt: “The college class of 2014 is the most indebted ever, keeping many from going out on their own and helping boost a shortage of first-time home buyers.”  In other words, student debt is depressing the economy, which then reduces job opportunities in a vicious cycle.

On the same day the LA Times article appeared, a story in The New YorkTimes Magazine, further documented the plight of recent college graduates: “The problem for college graduates began well before the Great Recession, around 2000, as employment demand stirred by the computer revolution started to wane. Specifically, there's evidence of sharply curtailed opportunities for people in so-called cognitive-task occupations, those typically associated with college graduates.” While we continue to hear stories about the need for more college graduates, especially in the STEM areas, the reality is that these jobs make up less than 5% of the labor market, and the wages in these areas have been driven down by the high number of applicants for each job.

As young people find themselves facing low-paying jobs and high debt repayments, they have been forced to delay their lives and return back to their parents: “One in five people in their 20s and early 30s is currently living with his or her parents. And 60 percent of all young adults receive financial support from them. That’s a significant increase from a generation ago, when only one in 10 young adults moved back home and few received financial support. The common explanation for the shift is that people born in the late 1980s and early 1990s came of age amid several unfortunate and overlapping economic trends. Those who graduated college as the housing market and financial system were imploding faced the highest debt burden of any graduating class in history. Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000.”  As more college graduates rely on their parents to support them, we have to ask what happens to the young people who do not have parents with extra resources.

As several economists have shown, if you have the bad luck of graduating college during an economic downturn, your entire life can be affected: “And more than half of recent college graduates are unemployed or underemployed, meaning they make substandard wages in jobs that don’t require a college degree. According to Lisa B. Kahn, an economist at Yale University, the negative impact of graduating into a recession never fully disappears. Even 20 years later, the people who graduated into the recession of the early ’80s were making substantially less money than people lucky enough to have graduated a few years afterward, when the economy was booming.” Adding insult to injury, the people who will suffer a life of lower income will also be the ones having to pay back the most amount of debt.

Adam Davidson argues that the reason for this crisis stems from political and economic decisions made over the last 34 years: “Since 1980, the U.S. economy has been destabilized by a series of systemic changes — the growth of foreign trade, rapid advances in technology, changes to the tax code, among others — that have affected all workers but particularly those just embarking on their careers.”  Like so many journalists and economists, Davidson does not mention de-unionization, financialization, and profit-hording.  The fact is that corporations continue to make huge profits, but nothing is forcing them to share their wealth with labor.   Meanwhile, the entire economy is rigged to make the wealthy wealthier.

In a typical analysis of what has happened to the American worker since 1978, Davidson refuses to look at the loss of labor power and ascendency of management power: “But we now know that, during the ’70s, this system was becoming unhinged. Computer technology and global trade forced manual laborers to compete with machines at home and with low-wage workers in other countries. The changes first affected blue-collar workers, but many white-collar workers performing routine tasks, like office support or drafting or bookkeeping, were also seeing their job prospects truncated. At the same time, these developments were hugely beneficial to elite earners, who now had access to a larger, global market and productivity-enhancing technology. They were assisted by changes in government policy — taxes were cut, welfare programs were eliminated — that further rewarded the wealthy and removed support for the poor.”  Yes, the welfare state has been reduced through tax cuts and anti-government politics, but businesses embraced an intentional strategy of destroying labor power and increasing profits at the top.  In contrast, in Northern Europe, where most of the workers are unionized and participate in workplace decision-making, high economic productivity has been combined with low-income inequality and fortified social programs.  There are simply better and fairer ways of doing things.