As uncomfortable as our collective financial present might be, the true impact of these struggling times won’t be known for years.
That’s the Twitterized summation of Don Peck’s concise, illuminating new book, “Pinched: How the Great Recession Has Narrowed Our Futures & What We Can Do About It,” a project that grew out of his day job as a features editor for The Atlantic.
|Don Peck, author, ‘Pinched’|
Don Peck has been a writer and features editor at The Atlantic for seven years. Previously, he was a principal at the Advisory Board Company, a large strategic research firm and management consultancy. He holds a B.A. in government, modified with economics, from Dartmouth College and a Masters of Public Affairs with a focus on international development from the Woodrow Wilson School at Princeton University. Peck lives with his wife Meghan in Washington, D.C.
In a succinct 188 pages, Peck surveys more than 100 years of economic recessions, depressions and recoveries to arrive at something of a bird’s-eye view of our current economic discontent. If you were working in the struggling ’70s, Peck says, we’re at about 1976.
But just as the Great Depression gave rise to the no-nonsense thriftiness that characterized the Greatest Generation, our clingy Great Recession stands to strand whole segments of society, and perhaps whole regions of the country, in dire straits for decades.
Feeling pinched? Peck talks about the damage done and the precarious road ahead.
CreditCards.com: Let’s be clear upfront: You did not intentionally set out to write the manifesto for the Occupy Wall Street movement, correct?
Don Peck: (Laughs) That was not my goal, no. But I think many people are feeling a lot of inchoate frustration because the economy just isn’t doing well and people are struggling. I think Wall Street makes an obvious target today. The goals are diffuse and one shouldn’t overestimate the meaning of protests that involve hundreds of people, but yeah, I think we all can relate to it to some extent.
CreditCards.com: At least it’s not Hoovervilles and bread lines.
Peck: It’s interesting. In the Depression, one of the iconic images was of bankers on street corners selling apples; there was a sense that everyone was struggling together. And that certainly is not the sense today, nor is it the reality. Wall Street hasn’t bounced all the way back, of course, but it has come roaring back, some recent struggles notwithstanding. I think people are looking at their own lives and many of them are not seeing a recovery in their lives, and they are seeing one on Wall Street and they’re angry about the bailout, so I don’t think this should come as a great surprise to anyone.
CreditCards.com: So in fact we’re not all in this together.
Peck: I’m not all doom and gloom for decades to come; I don’t think that the U.S. will never recover. But I do think it’s important to recognize that there are advantages that we’ve had in the past that we don’t have right now.
CreditCards.com: Much of the reportage on the Great Recession has measured it against the Great Depression. Is that valid?
Peck: Absolutely. Long, deep recessions, which are common after big financial crises, in and of themselves change society and kind of change the future in predictable ways. As high unemployment lingers, as wages remain stagnant, if that lasts beyond a few years, most aspects of public life become meaner, politics become zero-sum and anti-immigrant sentiment tends to rise. All of that happened in the Depression, and early evidence shows all of that is happening now.
CreditCards.com: But there are some important differences as well.
Peck: There are. Productivity growth during the Depression was actually extremely high and the rate of big breakthrough innovation was really high as well. That helped prepare the U.S. for strong growth as we came out of the Depression. Education levels in the U.S. during the Depression led the world by a considerable margin, which also positioned the U.S. quite strongly when that crisis ended. One of the great fears I have about this period is that neither of those things are true right now. We still have a very well-educated population, but educational gains have been slowing for years. We really don’t lead the world anymore in college graduates and high school attainment, so our skills aren’t quite what they were relative to the past, nor have they been growing very quickly. Our breakthrough innovations have been disappointing for various reasons for a decade. So I think there are a number of handicaps that the economy and the country face right now.
CreditCards.com: But not everyone is experiencing the same recession.
Peck: Yeah, it’s had very different class effects than the Depression did in that the center of society is struggling, whereas at the top of society, and in power cities like New York and San Francisco and Washington, D.C., and Austin, Texas, things are coming back. It’s had a very differential impact on people.
CreditCards.com: You write about the need to move Americans to those “power cities,” where the jobs are, but the sad truth remains that, due to the housing collapse, much of the middle class is now captive in upside-down mortgages and can’t sell their homes in stagnant housing markets.
Peck: That’s true. Mobility has been an historic advantage of the U.S. and explains some of the economic dynamism we’ve had. People have been very footloose and have gone where the job opportunities are. But the last couple of years since the crash have been the worst on record for mobility; fewer people have moved since the crash than at any point since the government began tracking movement. Mobility popped up a little bit because foreclosures began to force people to move, but it’s still very, very low by historical standards.
CreditCards.com: And it’s not just confined to the old Rust Belt anymore.
Peck: Yes, there are a lot of people really stuck and struggling not only in places like Detroit, which have been troubled for many years, but in a lot of Sun Belt cities like Las Vegas, Phoenix and Tampa where construction was really a very large part of the economy throughout the aughts. Now that the construction bubble has burst, a lot of these places are left with kind of shrunken economies and very high unemployment rates. And yet people aren’t moving, can’t move, because they’re underwater on their houses. And because two-earner households are more common, which makes moving very, very difficult.
CreditCards.com: What role did credit card debt play in making Americans feel pinched? Was it as destructive as it’s been portrayed?
Peck: I don’t think you can single out credit cards alone. Credit in an economy is generally a good thing. I think what happened is a combination of things. Credit has been incredibly easy and available and interest rates have been very low, which encourages debt. I think mortgages were really more important than credit cards in explaining the debt problems of Americans because people saw a difference between the two. Credit card debt is really pure debt that you have to pay back at some point. People took out mortgages thinking they were making investments, and they simply were too optimistic. They were counting on their home appreciation to compensate for stagnant wages. Of course, with the collapse of the bubble, we see that none of that was the case and consumers really are stuck with huge debts and shrunken assets. I think the main reason the economy is still struggling right now is that people are trying to pay down that debt. That’s still going to take another couple of years.
CreditCards.com: Among your solutions to our current malaise is to seize this historic opportunity to rebuild our infrastructure, particularly our highways, bridges and power grids.
Peck: That’s a fertile area for investment right now. Infrastructure is an investment anyway; it’s critical to economic growth in the long run and we have been under-investing for years. The U.S. spends about half of what Europe spends and about a third of what China does as a percentage of GDP, and that’s showing. Our infrastructure is aging year by year. The American Society of Civil Engineers recently gave U.S. infrastructure a D grade on its general state of repair. So we need to make this investment anyway, and it can be a really good source of job growth and demand growth in the economy today.
CreditCards.com: Some would characterize such a program as runaway government spending.
Peck: If we were to ramp up our infrastructure immediately and aggressively, that would pull exactly the sorts of people who have lost their jobs by the hundreds of thousands back into the market — unemployed construction and manufacturing workers. So it’s a very, very good jobs program that would put people back to work, put money in people’s pockets, help get the economy back on track faster, and it’s something that we need to do anyway and should be doing when the cost of materials and interest rates are at historic lows. Everything points toward infrastructure investment right now and it really could make a difference on a large scale.
CreditCards.com: Can that happen given our current political paralysis?
Peck: What you tend to see after bubbles burst, people become more money conscious, more personally conservative, more risk-averse, and more conscious of debt at every level, including federal debt. In the early 1980s, a majority of Americans believed that the federal debt had grown too large and would choke off recovery unless it were reduced. The government, in fact, didn’t listen and continued to pursue expansionary policies and the economy did recover. We saw something similar in the Depression in 1936 and 1937 that did lead to a fiscal contraction that delayed the end of the Depression by several years. So what we’re seeing today is kind of typical following busts.
The debt level is a problem in the U.S. today; I think we should take measures immediately to bind ourselves to reducing the debt once the economy is objectively healthy again, but now is not the time to do that. We do need investment in infrastructure, we do need aid to states, we do need aid to the unemployed, we do need other measures that can put money in people’s pockets, create jobs right now and help get us through these next couple years. If we don’t do that, if we remain politically stalemated, if we turn toward austerity, then I think we are looking at a much longer period of malaise and stagnation, and that would really be a catastrophe.