After the Fall

After the Fall

Now that the U.S. economy looks a just a teensy bit better (I know, I know the National Bureau of Economic Research won’t say that the recession is over, but still) it’s probably okay to start adding up the cost of the crisis. The Pew Research Institute has a new study out that does just that.

The twitter version is that the crisis cost Americans plenty and they are going to have to work (if they can) a long time to make up for it.

If you want to read the longer version, you can find it here.  It’s authored by Phillip L. Swagel, a professor at Georgetown University. He uses a pretty straightforard method to come up with the ‘cost’ of the financial collapse (which is distinct from the total recession, which started even before Wall Street went bust). He looks at how outlook for the economy as of September 2008 (right before we saw blaring headlines featuring Goldman Sachs, AIG, Lehman Brothers, Merrill Lynch – well, I could go on) and he looks at the way things ultimately turned out. The difference between the two is the ‘cost’.

Some examples:  (all examples look at the ‘loss’ compared to potential of the period from the last quarter of 2008 through to the first quarter of 2009)

  • U.S. gross domestic product in the last quarter of 2008 and the first quarter of 2009 ended up being about $648 billion less than the Congressional Budget Office forecast at the time.  That comes out to $5,800 for each of the 111 million U.S. households;
  • Compared to the CBO forecast, employment in the U.S. ended up being 5.5 million less than it would have been over the period
  • On average, American households ended up with $3,250 less of income than they would have had if things hadn’t tanked
  • And the kicker: Wealth losses in real estate totalled $52,900 per household (this is for a slightly longer period, from 2007  on, since housing started to slide earlier) while the value of equity holdings slipped $97,000 (okay, maybe slipped isn’t the best choice of word. Plunged anyone?)

…and on it goes.

Sooo…the net net is that everyone has to work harder and longer and live with less or figure a way to recoup the losses. 

Hopefully what looks like a decent business cycle recovery taking hold will help a bit, but it will be quite a climb back.

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