According to a new survey from the Federal Reserve, the average American family’s net worth dropped by nearly 40 percent between 2007 and 2010, wiping out 18 years’ worth of accumulated wealth. The middle class was hit the hardest. High-income Americans had more cushion, and those with low incomes were protected somewhat by the safety net and President Obama’s 2009 stimulus.
The 40 percent reflects wealth loss in all communities, but as we all know, when America sneezes, African-Americans catch pneumonia. Even though homes are typically the largest asset of most households regardless of race, homes of Black families make up 59 percent of their net worth, compared to 44 percent among White families. White households typically hold more of other types of assets, like stocks and IRA accounts. So, when the housing crisis hit, driving down the value of homes and pushing up foreclosure rates, Black households lost a far greater share of their wealth than did Whites.
The housing crash devastated us.
Former economic advisor to Pres. Obama, Cecilia Rouse, and professor of economics and public affairs at Princeton University joined Roland Martin on Washington Watch to discuss this and more.
MR. MARTIN: According to a new survey from the Federal Reserve, the average American family’s net worth dropped by nearly 40 percent between 2007 and 2010, wiping out 18 years’ worth of accumulated wealth. The middle class was hit the hardest. High-income Americans had more cushion, and those with low incomes were protected somewhat by the safety net and President Obama’s 2009 stimulus.
The 40 percent reflects wealth loss in all communities, but as we all know, when America sneezes, African-Americans catch pneumonia. Even though homes are typically the largest asset of most households regardless of race, homes of Black families make up 59 percent of their net worth, compared to 44 percent among White families. White households typically hold more of other types of assets, like stocks and IRA accounts. So, when the housing crisis hit, driving down the value of homes and pushing up foreclosure rates, Black households lost a far greater share of their wealth than did Whites. The housing crash devastated us.
We’re talking about the loss of middle-class wealth today. Former economic advisor to Pres. Obama, Cecilia Rouse, [and] professor of economics and public affairs at Princeton University, joins us from Princeton.
Cecilia, welcome back to “Washington Watch.”
DR. CECILIA ROUSE: Thank you. It’s a pleasure to be here.
MR. MARTIN: Should we simply accept the reality, Cecilia, that the economy that we used to have is no more? Every month when the jobs report comes out, people say what happened when Pres. Reagan was in office, the last time we went through a difficult time; but we’re living in a much different world now, and at some point when do we begin to accept what is the new normal?
DR. ROUSE: Well, I – I’m not sure exactly what you mean by that question in the sense that I think our economy has always been dynamic. There have always been changes. Yes, it’s a little different. It’s more global than when Pres. Reagan was in office, for example. We know that technology is playing an ever-increasing role. We’re more of a service-oriented economy.
But I do believe that the foundations of our economy are – remain the same, which is we’re a – an economy and a country that’s based on innovation, and I believe that we will – we – we will regain our footing. I think we’re already seeing signs of that. Yes, it’s a slow recovery, but I believe we’re see- — we’re in a recovery; and that, you know, maybe we won’t be in a bubble like we were, which – before we got into this economic crisis; but I believe we will co- — we will regain our strength as a – as a strong economic country.
MR. MARTIN: Here’s what I mean by that. If you look at what has taken place in the last 20 years, in many ways we were driven by credit, folks overspending themselves. You look at credit card debt. You look at many of these cases where folks were flipping these homes back and forth. Housing prices were inflated.
Now, all of a sudden, the economy falls through the floor. People begin to recognize they can’t continue to overextend themselves, and so all – and when 70 percent of our economy is driven by consumer spending, and now all of a sudden, consumers are choosing not to spend like they used to, and you don’t have all of the credit. That’s – creates a ripple effect, because if you’re a business, and folks aren’t spending more money, I really can’t hire more people. I must do more with less. And so that’s what I mean by the “new normal.” It’s how we also are living differently by virtue of the crisis, where we were totally overextended; and, frankly, it was called “check due.”
DR. ROUSE: I – I think – I think that’s right. That was – I – I do- — it’s funny that you call it the “new normal,” because I think many of us look back at that time and say that should never have been the normal, that it was a bubble. We were outspending. We were outspending our incomes, and that kind of growth is not sustainable.
What we’re looking forward to going forward is balanced growth in which we all benefit and that’s sustainable. And so I think, you know, maybe it’s a new normal in that we’re not going to be living on heydays, where we’re living off of credit that we can’t pay back – ever. But I think what we’re looking forward to is prosperity that’s bo- — that’s based on a balanced, sustainable growth.
MR. MARTIN: Well, what – what – in terms of the future, in terms of where these jobs are going to come from, we keep hearing “manufacturing,” “manufacturing,” “manufacturing.” We keep hearing “technology.” Then we also hear about outsourcing and things along those lines. And so, Cecilia, in terms of the job growth in the future, where’s it going to come from; because you have people today who were making $75,000 a year now taking minimum-wage jobs? You have many people who say they’re now underemployed, if you will. And, you know, put on that crystal ball in terms of laying out where we go to in the future when it comes to job growth in this country.
DR. ROUSE: Well, look. If I had a crystal ball that I didn’t think was somewhat cloudy, I would probably be trying to cash in; but I think that what we can see is that, you know, part of the reason why people are – are somewhat underemployed, or taking those jobs that really they’re over qualified fro- — for is the fact that we are still in a recovery, and that’s somewhat the nature of recovery – is that those individuals that have the skills, at least they’re employed. And that’s already a really important fact. As we have growth, as our economy picks up, they will move into the jobs for which they are better qualified, making room for those individuals who are not even – don’t even have a job today.
So, I – I don’t believe that that is the future. No- — nonetheless, you’re touching on an issue that I think many economists are concerned about – I know the President is concerned about [it] – which is growing income inequality, and that has been going on for the last 20, 30 years; and I think it’s something about which we will have to deal. But I think really what our economy is dealing with right now is a lack of growth, a lack of aggregate demand; and as that picks up, everybody will be benefiting.
MR. MARTIN: The Fed says that the economy will grow between 2.4 percent and 2.9 percent this year. Every time the job reports come out, we hear people say, “That’s not fast enough.” “We can’t keep up with the demands,” but you’ve had Bernanke say – say in 2009, “Guys, it” – look at five to seven years, potentially, it’s going to take us to get out of this.
And so isn’t it crazy every, single month, when you hear where people somehow think it’s going to flip a switch, and it’s going to turn around in 90 days? Shouldn’t we simply get our minds around – wrap our minds around the reality that it is going to take potentially another three and four years for us to dig ourselves out of the – the huge hole we were in?
DR. ROUSE: Absolutely. This was the greatest recession since the Great Depression. Yeah, I wish – if I were in my classroom, I would show you a chart of the job loss in this recession compared to prior recessions. It was huge, and it was going to take us some time to recover, especially since the roots of the recession were in the financial sector. And that is why it’s – it’s really an accomplishment that we didn’t fall into a depression, that we were – that the President and, you know, working with Congress, was able to stabilize this economy. And it’s also why it’s so important for there to continue to be investments.
We’re seeing a recovery, but we’re – we know it’s not fast enough. This is a phenomenal time for the – the public sector to be investing in infrastructure. We know that that’s one of the foundations of growth. The federal government can borrow at historically low rates. We have construction workers that don’t have anything better to do, so they’re drawing on unemployment. They’re turning to disability insurance. Instead, let’s put those workers to work bu- — rebuilding our roads, build – building – rebuilding our transportation systems, so that we have those platforms for growth, because this will take some time to heal.
MR. MARTIN: Cecilia, always a pleasure. We certainly appreciate you being on “Washington Watch” again.
DR. ROUSE: It’s been a pleasure. Thank you.