The recession officially began seven years ago this month, which makes it a good time to look back and assess the damage. The carnage is impressive.
To start with the top-line numbers, we have already lost almost $10.5 trillion in output because of the downturn. This is the value of the goods and services that could have been produced over the last seven years, according to the Congressional Budget Office (CBO), but were not because of all the people thrown out of work by the recession.
To put this figure in context, it comes to more than $33,000 per person in the United States, or $132,000 for a family of four. There are a lot of people in Washington who have been yelling about the cost of the food stamp program. But the amount of money we lost because of the recession is almost 140 times the current annual budget for that program.
For another comparison, the government looks to lose about $500 million on the loan guarantees it made to Solyndra, a start-up solar-energy company that received stimulus money and later went bankrupt, to the guffaws of conservatives. The money lost because of the recession is 21,000 times what taxpayers lost on Solyndra. If we spent an hour yelling about Solyndra and we wanted our yelling time to be proportional to the amount of money lost, if we started on Jan. 1, 2015, we would have to be yelling about the recession around the clock until May 24, 2017. And this doesn’t even count the roughly $2 trillion in annual losses from the downturn for the rest of the decade that are implied by current CBO projections.
If employment had followed the path projected by the CBO before the recession, more than 6 million additional people would be employed today. And another 2 million people who want full-time jobs but can find only part-time work would instead have full-time jobs. If we had followed the path projected back in 2007, real wages in total in 2014 would be more than 20 percent higher than they actually are.
The lost jobs and lost wages have destroyed many people’s lives. The share of the population in poverty, which had been stable at about 12.5 percent through the middle of the last decade, jumped to 15.1 percent of the population in 2010 and now stands at 14.5 percent. The poverty rate for children went from 18 percent in 2007 to a peak of 22 percent in 2010. The poverty rate for black children rose from an already deplorable 33.7 percent in 2007 to a peak of 37.8 percent in 2010. The rate eased slightly, to 36.9 percent, in 2013.
Even these numbers only begin to scratch the surface of the damage done. Well over 1 million people lost their homes to foreclosure because of the collapse of the housing bubble. Probably twice this number were forced to sell homes long before they would have otherwise, because of job loss or inability to keep up with mortgage payments. In addition, we have the massive baby boom cohort now hitting retirement, with the bulk having little wealth or retirement funds to support themselves beyond Social Security.
The list of damage can be considerably extended. How many innovations did we not see because of recession-induced cutbacks in spending on research? How much further might the lost innovations have advanced clean energy or lifesaving drugs? What will be the prospects of children who grew up in poverty or of families who were set back by the loss of a job or a house?
And just to remind everyone, this damage is not the result of a hurricane or earthquake or some other natural disaster. It was the result of failed economic policies that could have easily been altered. Our policy elites either did not see or chose to ignore the $8 trillion housing bubble. Unfortunately, the fountainheads of failure are still largely calling the shots in setting the economic policy agenda of both political parties. Clearly this is not an occupation in which failure has an adverse effect on one’s career. Rather, advancement in economic policymaking circles is largely a function of connections and seniority.
The harm from the downturn is compounded by the continuing failure of economic policy. Rather than taking the steps needed to restore full employment (e.g., stimulus spending, a lower-valued dollar and increased use of work sharing) many in policy circles continue to focus on cutting spending to reduce budget deficits, which will throw even more people out of work. There are even some Scrooges who continue to push for cutting Social Security and Medicare, ignoring the millions who are still out of work and the many older workers are already looking at a bleak retirement.
Because of the structure of the country’s politics — in which politicians seek donations from rich people, who favor candidates who talk about cutting Social Security rather than creating jobs, because of the tax implications — we are likely to hear more of the same. But before taking any of the deficit whining from these people too seriously, remember to ask them when they stopped being wrong about the economy.