Businessweek Archives

The Slump That Broke The Public's Back


Economic Viewpoint

THE SLUMP THAT BROKE THE PUBLIC'S BACK

This recession is about average, as postwar recessions go. Unemployment is at 7.1%. According to the usual definition of a recession as two consecutive quarters of negative growth, it barely qualifies at all. Real gross domestic product grew at an annual rate of 1.8% in the third quarter of 1991, was flat in the fourth quarter, and appears to be declining only slightly in early 1992. Moreover, the recession was preceded by a record peacetime expansion. Why, then, is there such pervasive economic gloom?

The reason, I suspect, is that this recession aggravates what some commentators are beginning to call a "contained depression"--the era of slow growth, diminishing economic horizons, accumulating debt, and increased personal vulnerability that began nearly two decades ago. Working Americans have adapted to this slow economic decline by borrowing to sustain consumption or by pinching pennies in a variety of ways. For instance, they are working longer hours, taking cheaper and shorter vacations, deferring and juggling the rearing of children, delaying purchase of a house or buying a smaller one, making cars last longer, and eating out less. So in this context of long-term economic stress, even a modest recession can feel more like a last straw than a temporary setback.

OVER THE CLIFF. The elements of this contained depression are diffuse and not fully captured by statistics. On average, the U.S. economy grew at about 2.7% annually during the Reagan Presidency--but the benefits of that growth were highly concentrated. The personal economies of most Americans fell. According to Congressional Budget Office data for 1977 through 1991, only the top 20% of households enjoyed real income gains, and the biggest winners were the top 1%, whose real income more than doubled.

The average U.S. real wage peaked in 1973. It recovered almost to the 1973 peak again in 1979, but for the past 13 years, living standards have stagnated or declined for about 80% of American households. To compensate, Americans are working longer hours--the equivalent of an additional month a year, according to Harvard University economist Juliet B. Schor (page 18). When real wages take a hit, families can adjust by moonlighting or by adding a spouse to the labor force--but only once. When the decline in real income accelerates, as it has during this recession, families see themselves going over a cliff.

Compared with the world of 1973, profound structural shifts have also taken place in the economy. The costs of home ownership, medical care, and college tuition--three basic badges of membership in the middle class--have outstripped household income. Until recently, these shifts hit younger Americans disproportionately, for the generation that came of age before 1973 was substantially insulated. Most middle-class Americans over 45 bought a home when houses were affordable. They reaped substantial equity that they didn't earn, thanks to the great housing inflation of the 1970s. They already had their college degrees, bought cheaply, and entered a career track at a time when Corporate America was far more stable and permanent. With a job came health insurance, a pension plan, and the expectation that if you performed reasonably well, you could stay on until retirement.

DEEP GLOOM. But in the 1980s, much that was economically solid began melting into air. Not only the young found the good life harder to attain. Even the secure middle-aged found that stable, comfortable corporations could be here today and gone tomorrow. Suddenly, it wasn't just blue-collar workers worrying about plant closings; the opinion-leader class was abruptly vulnerable, too. Oligopolistic industries that had implicitly guaranteed job security were buffeted by leveraged buyouts, deregulation, global competition, and competitive pressure to ratchet down costs, most of which were ultimately labor costs. These hitherto impregnable bastions included banks, brokerages, broadcasters, telephone companies, blue-chip print media, insurance companies, high-tech businesses, as well as the biggest manufacturing corporations.

Suddenly, nobody's job was safe, except perhaps those of tenured economics professors. With loss of a job came lost health coverage and abrupt entry into a ruthless labor market, where available jobs paid sickeningly reduced wages. Someday, all of this increased competitive pressure may produce a more efficient and productive economy, but that day seems far distant. For the moment, it produces vulnerability and diminished income.

That's why political commentators are wrong to tie President Bush's fortunes to the trajectory of short-term economic recovery. People feel this elemental exposure not because the unemployment rate has climbed a percentage point lately, but because of these long-term changes. The President, perhaps subconsciously, acknowledged this deeper gloom in his State of the Union address when he repeatedly used the venerable and ominous phrase "hard times." For most Americans, they are indeed. And however the measured recession fluctuates during this election year, all of this signals hard times for President Bush's reelection.

by Robert Kuttner

ROBERT KUTTNER IS CO-EDITOR OF "THE AMERICAN PROSPECT" AND AUTHOR OF "THE END OF LAISSEZ-FAIRE"

Photograph: Americans were already working longer hours and making sacrifices to adjust to an era of slow growth. Then they got zapped by the recession


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus