Posted on December 19, 2011 in
Articles
The Article: The Book of Jobs by Joseph E. Stiglitz in Vanity Fair.
The Text: It has now been almost five years since the bursting of the housing bubble, and four years since the onset of the recession. There are 6.6 million fewer jobs in the United States than there were four years ago. Some 23 million Americans who would like to work full-time cannot get a job. Almost half of those who are unemployed have been unemployed long-term. Wages are fallingāthe real income of a typical American household is now below the level it was in 1997.
We knew the crisis was serious back in 2008. And we thought we knew who the ābad guysā wereāthe nationās big banks, which through cynical lending and reckless gambling had brought the U.S. to the brink of ruin. The Bush and Obama administrations justified a bailout on the grounds that only if the banks were handed money without limitāand without conditionsācould the economy recover. We did this not because we loved the banks but because (we were told) we couldnāt do without the lending that they made possible. Many, especially in the financial sector, argued that strong, resolute, and generous action to save not just the banks but the bankers, their shareholders, and their creditors would return the economy to where it had been before the crisis. In the meantime, a short-term stimulus, moderate in size, would suffice to tide the economy over until the banks could be restored to health.
The banks got their bailout. Some of the money went to bonuses. Little of it went to lending. And the economy didnāt really recoverāoutput is barely greater than it was before the crisis, and the job situation is bleak. The diagnosis of our condition and the prescription that followed from it were incorrect. First, it was wrong to think that the bankers would mend their waysāthat they would start to lend, if only they were treated nicely enough. We were told, in effect: āDonāt put conditions on the banks to require them to restructure the mortgages or to behave more honestly in their foreclosures. Donāt force them to use the money to lend. Such conditions will upset our delicate markets.ā In the end, bank managers looked out for themselves and did what they are accustomed to doing.
Even when we fully repair the banking system, weāll still be in deep troubleābecause we were already in deep trouble. That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadnāt returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debtādebt so large that the U.S. savings rate had dropped to near zero. And āzeroā doesnāt really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Hereās the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble, which Alan Greenspan and then Ben Bernanke, chairmen of the Federal Reserve Board, helped to engineer through low interest rates and nonregulationānot even using the regulatory tools they had. As we now know, this enabled banks to lend and households to borrow on the basis of assets whose value was determined in part by mass delusion.
The fact is the economy in the years before the current crisis was fundamentally weak, with the bubble, and the unsustainable consumption to which it gave rise, acting as life support. Without these, unemployment would have been high. It was absurd to think that fixing the banking system could by itself restore the economy to health. Bringing the economy back to āwhere it wasā does nothing to address the underlying problems.
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