This week, Weekend Reader brings you Down The Up Escalator, by Barbara Garson. which will be released on April 2. Drawing on Garson’s interviews with a wide range of Americans who have felt the brutal consequences of the recession, she couples criticism of Washington’s economic policy with the personal stories of average citizens across the country. You can purchase it here.
Economists describe recessions as either V shaped, meaning sharp down, then sharp back up; U shaped, where the economy muddles around at the bottom for a while; or W shaped— that’s the dreaded double dip. The Great Recession was experienced as a classic V by my three investors, but it morphed into an L for the Pink Slip Club Four, who live on wages.
That may sound like the way the world works. “There’s nothing surer,” as the old song says, “the rich get rich and the poor get poorer.” But oddly enough, that eternal verity is usually suspended during recessions.
During normal-shaped recessions, companies tend to maintain their plants and retain their core workers while they wait for business to pick up. In the meantime (in between time), they compete on price and take less profit.
As a result, the share of national income that went to investors used to decline during a recession, while the share that went to employees increased. I’m not trying to tell you that workers got rich during previous recessions or that the rich became penniless like Richard Bey. But their shares of the total income took a temporary Robin Hood turn.
This time it’s been different. Corporate profits were 25–30 percent higher at the official end of the Great Recession than before its onset. Meanwhile, wages as a share of national income fell to 58 percent. That’s the lowest the wage share of income had been since it began to be recorded after World War II. The Financial Times (my source for these statistics) calculated that “if wages were at their postwar average share of 63 percent, U.S. workers would earn an extra $740bn this year  or about $5,000 per worker.”
Investors not only took a bigger share of the current national income during the recession years; they also found themselves in possession of more of the accumulated national wealth.
According to the U.S. Federal Reserve Bank, the middle class (the middle 60 percent of us) lost a greater percent of its wealth during the Great Recession than either the poor or the rich. By 2010 the wealth of the median American family was lower than it had been in the 1990s. The Federal Reserve calculates that about three quarters of the recession wealth loss was due to the housing bust. That makes sense since homes are where working Americans store the bulk of their wealth and their children’s inheritance. And during the recession, homeowners lost equity and entire houses while investors, like it or not, took possession.
To understand how this wealth shift plays out over the generations, I got back to my GI coffeehouse friend Duane, or rather to his family.
Duane’s children walked away from their inheritance because it was underwater. Whatever money their father put into the Arizona house was washed away when the bubble burst. I asked Duane’s son about the history of home ownership in his family.
He knew that his grandparents owned their home in Cleveland and that Duane’s sister moved in after both grandparents died. But he didn’t know much about the financial details, so he put me in contact with his aunt Claire.
I was surprised and touched by the things Claire remembered hearing from her brother about the GI coffeehouse. “That was forty years ago,” I demurred. But Duane had talked about the place so much, his sister responded, that “you’d think he got his honorable discharge from the Shelter Half [the name of the coffeehouse] instead of the army.” That made me feel bad once more about how I’d let our contact drop.