Back in May, at the Volcano Symposium at Oxford University, I made the argument that economists and pundits are not seeing the same economy.
We are, by almost any measure, in the midst of a Second Great Depression.
I am often amazed at how controversial that claim is. Many economists and pundits, on both the Left and the Right, refuse to admit we’re in the midst of a depression—qualitatively different from the succession of postwar recessions and comparable in scope to what we last experienced in the 1930s.
The only explanation, it seems to me, is we’re looking at two different economies.
One group is satisfied that we’re in a recovery—and they’re right, at least in terms of indicators such as GDP growth, profits, and stock market valuations. That’s one economy. But then there is the other set of indicators, measures of a second economy. What I’m thinking about here are the levels and duration of unemployment, poverty and near poverty, food insecurity, home foreclosures, student debt, and the like. These indicate that the vast majority of the population is not participating in the recovery that those are on the top are experiencing.
Not only have we witnessed a growing gap in economic outcomes. There is also a wide gap in the perceptions and ways of making sense of the current situation. In my view, both gaps—of outcomes and perceptions—fuel the social volcano we are currently sitting on.
Much the same argument is made by Jonathan Chait, who is trying to explain why Washington accepts the current mass unemployment.
It’s important to respond to arguments on intellectual terms and not merely to analyze their motives. Yet it is impossible to understand these positions without putting them in socioeconomic context. Here are a few salient facts: The political scientist Larry Bartels has found (and measured) that members of Congress respond much more strongly to the preferences of their affluent constituents than their poor ones. And for affluent people, there is essentially no recession. Unemployment for workers with a bachelors degree is 4 percent — boom times. Unemployment is also unusually low in the Washington, D.C., area, owing to our economy’s reliance on federal spending, which has not had to impose the punishing austerity of so many state and local governments.
I live in a Washington neighborhood almost entirely filled with college-educated professionals, and it occurred to me not long ago that, when my children grow up, they’ll have no personal memory of having lived through the greatest economic crisis in eighty years. It is more akin to a famine in Africa. For millions and millions of Americans, the economic crisis is the worst event of their lives. They have lost jobs, homes, health insurance, opportunities for their children, seen their skills deteriorate, and lost their sense of self-worth. But from the perspective of those in a position to alleviate their suffering, the crisis is merely a sad and distant tragedy.
The Second Great Depression is a tale of two different, and ultimately diverging, economies.