The New York Times, Aug 25,2018: Inviting the next financial crisis
The financial system and economy are clearly on much firmer ground than they were a decade ago. Wages are barely keeping up with inflation, but the unemployment rate, which climbed as high as 10 percent, has fallen to 3.9 percent. The housing market, once crippled by foreclosures, has sprung back to life, with home prices scaling new heights in many parts of the country. Banks, once dependent on taxpayer dollars to keep their doors open, are raking in profits.
Yet the economy has still not fully recovered. The per capita gross domestic product of the United States is about $70,000 smaller over the average person’s lifetime than it would have been had the economy stayed on the trajectory it had been on before the crisis, according to a recent analysis published by the Federal Reserve Bank of San Francisco.
Of course, averages obscure a lot. Americans have not shared equally in the losses from the crisis. Families of modest means have far fewer, or in many cases zero, assets; they may have lost their homes and their savings. The average family of three earning less than $42,500 a year saw its net worth chopped nearly in half, to $10,800 in 2016, from $18,500 in 2007, the Pew Research Center found. Wealth of families earning $42,500 to $127,600 fell by nearly a third, to $110,100. Yet, the wealth of affluent families who earn more than $127,600 jumped nearly 10 percent, to $810,800. The crisis and the government response to it worsened longer-term trends that have caused wages to stagnate for most families while rewarding the top 1 percent with an ever-bigger slice of the economic pie.
Before the crisis, the share of economic output that went to workers had been falling steadily since early 2001, when it stood at 64 percent. After the crisis it plunged to about 56 percent, according to the Bureau of Labor Statistics, rising only slightly in the last few years.This is because as workers’ incomes have stalled, corporate profits have shot up, especially for a small number of what some experts call “superstar firms,” including technology giants like Apple; Alphabet, which owns Google; and Facebook.
Last year, Republicans claimed their biggest legislative victory of the Trump era, reducing federal revenue by $1.5 trillion over 10 years by slashing taxes on corporations and wealthy families. The legislation provides generous and permanent tax cuts to rich people in the investor class, including foreigners who own stock in American businesses. Working-class families, by contrast, received minor savings that are set to automatically vanish after 2025. The tax law will widen income inequality and encourage financial excesses by overstimulating an economy that is already nine years into a recovery.
In May, Congress voted to roll back parts of the Dodd-Frank law by exempting banks with assets of up to $250 billion, up from $50 billion, from stricter federal oversight. This was supposedly done to help smaller, community banks, but the change was so sweeping that it would leave fewer than 10 big banks under the kind of supervision many independent experts concluded was necessary after the crisis.
In addition, Mr. Trump has effectively neutered the Consumer Financial Protection Bureau by handing control of it temporarily to his budget chief, Mick Mulvaney, who has done the bidding of big banks as a bureaucrat and when he was a House member. He has stopped new investigations by the bureau and watered down penalties against lenders accused of preying on borrowers, to the point that the penalties are meaningless.
With investors bidding up stock prices and pouring billions of dollars into money-losing start-ups as if nothing could go wrong, it is all the more frightening and infuriating that officials have so quickly tossed aside the lessons from the last crisis. In making life grander for the most comfortable Americans, the government is putting everyone’s economic prospects at greater risk.
Comments are closed.