Long-Term Economic Pain
Source Dave Anderson
Date 10/08/12/05:59
Long-Term Economic Pain

THE PAIN COURSING through American families is all too real and no one
seems to know what to do about it. A rigorous new analysis for the
Rockefeller Foundation shows that Americans are more economically
insecure now than they have been in a quarter of a century, and the
trend lines suggest that things will only get worse.

Rampant joblessness and skyrocketing medical costs are among the
biggest factors tearing at the very fabric of American economic life
so painstakingly put together in the early post-World War II decades.

The analysis was done by a team of researchers led by Professor Jacob
Hacker of Yale University. They created an economic security index,
which measures the percentage of Americans who experience a decrease
in their household income of 25 percent or more in one year without
having the financial resources to offset that loss. (Major medical
expenses were counted as a decrease in available income.)

The team’s findings were grim. Simply stated, more and more families
are facing utter economic devastation: completely out of money, with
their jobs, savings and retirement funds gone, and nowhere to turn for
the next dollar.

Economic insecurity has been increasing for at least a generation and
perhaps longer, with very dangerous levels being reached in this
latest recession. Professor Hacker discussed the ominous trend lines
in an interview.

In 1985, at a time when the unemployment rate was 7.2 percent, the
portion of American families that would be counted as economically
insecure by the terms of this new index was 12 percent. Professor
Hacker explained that the percentage would naturally tend to rise or
fall with improvements or a deterioration in the economy.

But what has happened over the past few decades is that the percentage
of insecure Americans relative to any given level of the economy has
tended to steadily rise. So in 2002, coming out of a mild recession,
there was a 5.8 percent unemployment rate, but the percentage of
economically insecure families had jumped to 17 percent.

All of the data for 2009 are not yet in, but the research team
projects, conservatively, that more than 20 percent of Americans
experienced a 25 percent or greater loss of household income (without
a financial cushion) over the prior year — the highest in at least a
quarter of a century.

A decrease of this magnitude in available income is a heavy blow. As
the study points out, “The typical individual who experiences a
decline of at least 25 percent in household income requires between
six and eight years for income to return to its previous level.”

“What we’re seeing, basically, is what we’re calling ‘the new normal,’
” said Mr. Hacker. “We’re slowly ratcheting up this level of economic

Put another way, the bottom is falling out for increasing numbers of
Americans, and with the national employment situation stuck in an
extended horror zone there is little to stop the free fall. In
addition to tracking the percentage of Americans suffering household
income losses of 25 percent or more, the index also shows that
families are suffering steeper income declines than in previous

According to the study, “Between 1985 and 1995, the typical (median)
drop among those experiencing a 25 percent or greater available income
loss was about 38.2 percent; between 1997 and 2007, it was 41.4

Only the very well-to-do are out of the range of this buzz saw. “The
fact that Americans are facing a very real and growing risk of
large-scale economic loss is true across the spectrum,” said Mr.
Hacker. “It’s true of blacks more than whites, but it’s true of
whites, as well. It’s true of less affluent people more than more
affluent people, but it’s true of the more affluent as well.

“If anything, we’re understating how bad things are out there right now.”

Policy makers seem bewildered by the terrible economic state of
ordinary working Americans, including those once considered solidly in
the middle class. Despite warnings back in 2008 that we were on the
verge of another great depression, the big financial institutions and
corporate America seem to be doing just fine now. But average
Americans are hurting with no end to the pain in sight.

More than 14 million people are out of work and many more are either
underemployed or so discouraged they’ve just stopped looking. Big
corporations, sitting on fat profits even as the economy continues to
struggle, have made it clear that they are not interested in putting a
lot more people back to work any time soon.

Policy makers have dropped the ball completely in terms of dealing
with this devastating long-term trend of ever-increasing economic
insecurity for American families. Long-term solutions that have to do
with extensive job creation and a strengthening of the safety net are
required. But that doesn’t seem to be on anyone’s agenda.

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