The Long Term Damage of Economic Downturns

The Long Term Damage of Economic Downturns 1

Yves here. This short but important Angry Bear post focuses on the fact that many people take serious hits in economic downdrafts and never come close to recovering. One group is those just starting their careers, particularly if as happens so often now, they borrowed to pay for their degree. Our UserFriendly, who got a STEM degree, had the bad fortune to graduate in 2008. After the financial crisis, unemployment was greater among new college graduates than recent high school grads. To make matters even worse, in 2009, when the slow economic recovery was taking hold, employers tended to favor 2009 graduates over 2008 one who’d been un/underemployed or forced to take work that didn’t make use of their college training.

Another form of ongoing destruction which becomes more acute in times of economic distress is the loss of good factory jobs. Here, the damage is often to entire communities. People who have built homes and lives not only are reluctant to uproot for personal reasons but they lack the connections and the financial resource to make a go elsewhere. The Wall Street Journal had an excellent 2017 report on how more and more people were stuck in rural America; we wrote it up then. It focuses on the long-tern decline of a Michigan town, but also includes how individuals took big set backs in the early 2000s or the financial crisis. I suggest reading the entire piece. From its opening section:

The Wall Street Journal published an excellent, sympathetic, in-depth article on why residents of rural America who want to leave to get better jobs as their local economies wither can’t get out. Some will no doubt seem obvious to readers while I suspect others will be surprises.

Even though mobility has fallen generally in the US, it has decreased more in rural areas than urban ones. The number of people in rural counties who moved across county lines in 2015 was 4.1% compared to 7.7% in the late 1970s. This is despite the fact that rising poverty and other social stresses mean even more people want to get out than ever. See the geographic distribution:

The Long Term Damage of Economic Downturns 2

But “getting out” means moving to a city, even if just a mid-sized one. And many small town denizens find it harder than ever to make the jump. The Wall Street Journal story focuses on West Branch, Michigan, a town with barely over 2000 people hit hard by the closure of manufacturers and changes in farming. But even with its economic distress, hardly anyone leaves. The county, with about 21,000 residents, loses only one person per 1,000 each year. The photos convey that the members of the town live in a beautiful area and care about the community. This shot is from a resident’s patio. Notice the carefully tended lawn and the tidy houses across the lake:

The Long Term Damage of Economic Downturns 3

While economic barriers loom large, social and cultural factors also play a big role.

The most obvious hurdle is high housing costs. The gap between rural and urban housing prices has become a yawning chasm. While professionals could make the transition, the article points out that less skilled workers can’t. A janitor who left Alabama, Mississippi or South Carolina for the New York City metro area would wind up paying 52% of his paycheck on housing.

The Covid crisis has turned the question of where safety for lower income workers lies on its head now that many big cities are suffering. Those taking hits include small business owners and workers in city centers, tourism, hospitality, and live entertainment. Our post on job losses in New York City indicated it will be a long hard slog for them.

By Kevin Melvin. Originally published at Angry Bear

Chairman Powell, Secretary Yellen, and President Biden have recently spoken about the long term consequences for many of economic downturns. More should, more often. The Media should recognize how important this is; ask the question whenever it needs to be asked. The Congress should put this front and center in any and all discussions about economic policy.

Why? Because millions of Americans never recovered from 1979-1980. Millions more never recovered from the 2001. More than from either of those never recovered from the recession of 2008. Who didn’t recover? Those who just gotten their first decent job, just taken out a mortgage, just gotten married and started a family, those who had just experienced a family medical emergency, … The types of folks that the likes of Mitch McConnell couldn’t be bothered to bring a bill to the floor for; those.

As they say — say way too damned often — through no fault of their own. It usually isn’t. Almost never is. But it sure does keep them in their place and at hand just in case they might be needed by the economy at some point in the future and no one else is available; and they don’t fall so completely as to no longer be useful. For more on this, visit your local homeless encampment.

Before, other, homelessness, the consequences often include, not in any particular order; bankruptcy, the broken family, divorce, … Seems, when you are knocked down, it’s hard to get back up. Hard enough the first time. Can’t all succeed, can we?

Were you there in 1980 to see the family guy getting caught trying to steal the bag of groceries? When the Market called the cops and had him arrested? When all the engineers quietly lost their jobs, their careers, in 2001? As Hazel sang so eloquently “And they ain’t coming back.”

They didn’t. And too many of them wound up divorced, working at the market, … doing anything but engineering, or whatever other career they might have had before.

If you were at Al’s Big Burger at lunch time one day in the spring of 2007 and overheard the black man with a really good job with PG&E explain to his co-workers the offer Wells Fargo made him on the equity in his house, you knew then and there the stuff was about to hit the fan; you started looking for a place to scream. Fortunately, Angry Bear was at hand.

For the survivors of 1979-80, and 2001, those who were still marveling at their survival, 2008 made those two recessions look like a walk in the park. After 2008, there was no equity to use to get back up with.

‘Tis a sorry-arsed excuse Mitch, republicans, whatever one you come up with next.

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