Last week, Janet Yellin, former chair of the Federal Reserve, gave an upbeat assessment of the pre-pandemic U.S. economy. “Very fortunately we started with an economy that was healthy before this hit,” she told the PBS NewsHour. “The banks were in good shape, the financial system was sound, Americans at least overall on average had relatively low debt burdens.”
But how “healthy” was that economy, really? How healthy is an economy whose workers have so little savings that they can’t make the rent after missing just a couple of paychecks? How healthy is an economy whose small businesses have so little cushion that they face almost instant obliteration when their cash flow is disrupted? How healthy is an economy where hourly employees performing many essential services earn so little that they have to go to work sick to keep their jobs? And how healthy is an economy whose housing costs force millions to cram into overcrowded homes in polluted slums replete with high stress, malnutrition, asthma, diabetes, heart problems, and other chronic disease?
“There’s nothing fundamentally wrong with our economy,” said Fed chairman Jerome Powell in March. It was “resilient,” he said in February. Yellin concurred, citing the old good news in her hope that the “economy will recover much more speedily than it did from any past downturn.”
Recover for whom? The experts look at conventional measurements, which painted a picture of prosperity before COVID-19. The unemployment rate last September hit a fifty-year low, at 3.5 percent, and the rate for people without a high school diploma dropped to a new low of 4.8 percent. The GDP had been growing within the range considered ideal—two to three percent—and Powell reported a rising willingness of employers to hire low-skilled workers and train them.
But alongside the bright figures on unemployment and job creation, consider a competing set of numbers from before the pandemic: The poverty-level wages for those who harvest our vegetables, cut our Christmas trees, wash our cars, cook and serve our food in restaurants, deliver groceries to our doors, clean our offices, and even drive our ambulances. The 14.3 million households (11.1 percent) uncertain that they could afford enough food, and the 5.6 million families (4.3 percent) where at least one person has had to cut back on eating during the year. The 14.3 percent of black children with asthma, double the rate in the population overall. The 20 percent of children living in crowded homes shared with other families or three generations of their own, and the 50 percent of urban children who have lived in those conditions by age nine.
A pernicious dynamic of financial stress is the unexpected link between housing costs and malnutrition. For many low-wage families without access to such government subsidies as Section 8 vouchers or affordable housing, rent can soak up 40 to 60 percent of income, which can leave too little for other necessities. You have to pay the rent. You have to pay the electricity, phone, and fuel bills. If you need a car to get to work, which the vast majority of employees do, you have to make the car payments. Those are not optional. The category that can be squeezed is for food, and that’s what many poor families have to do.
A result is childhood malnutrition. It sometimes manifests itself in obesity resulting from cheap, bad food, which in turn can promote diabetes. It compromises the immune system. Even more seriously, deprivation of nutrients such as iron during key periods of brain development, both before and after birth, can lead to lifelong cognitive impairment. Studies show that children who suffered iron deficiency as infants, even if they’re fed properly later, still suffer as adolescents, scoring lower in math, written expression, and selective recall. Their teachers see them displaying “more anxiety or depression, social problems, and attention problems,” according to a National Academy of Sciences report.
So when federal and state governments are stingy with housing subsidies, as they always are, they are effectively, perhaps unwittingly, damaging children’s brain development and life opportunities.
The booming economy since the Great Recession of 2008, amplified by Republican tax cuts that gave corporations huge benefits, has begun to raise hourly wages, but not significantly.
If median hourly wages in certain jobs are put next to the official poverty line—currently $25,750 a year for a family of four—it’s clear why so many people are in desperate trouble so soon after the economy’s lockdown. Most poor families have only one wage earner, so assuming a full-time, 40-hour week, that person would have to be paid $12.38 an hour just to reach the poverty line. As of May 2019, according to the Bureau of Labor Statistics, the median hourly wage for ambulance drivers and assistants was just $12.45; for workers in retail sails, $11.37 to $12.14; for building cleaners, $12.68; for parking attendants, $12.11; and for fast-food and restaurant cooks and servers (some of whom also get tips), $11.00 to $12.45.
The lesson is to look beyond the unemployment rate and number of new jobs and examine how well those jobs pay. The “healthy” economy did little to narrow the wealth gap. The most recent Federal Reserve figures, from before the pandemic, showed the top 10 percent of households with a median net worth of $2,387,500 and the bottom 10 percent with minus $962—that is, they owed more than they owned.
Adding assets and subtracting liabilities as of the fourth quarter of 2019, the wealthiest 10 percent had 70 percent ($78.5 trillion) of the country’s total household net worth, and the bottom 50 percent had just 1.5 percent ($1.7 trillion). The top had miniscule debt, and the bottom half had miniscule financial assets alongside huge mortgage and consumer debt.
So, Janet Yellin was only partially right when she said that Americans had low debt burdens. Consumer debt reached a record high in 2019 of more than $14 trillion, according to Experian, the credit agency. But it was lower as a portion of income. And defaults and late payments were low enough to drive the average FICO score—a person’s credit rating—to a high of 703, up from 689 in 2010 at the end of the Great Recession. (A perfect score is 850.) Given the high credit card and other debt among the unwealthy, however, delinquency rates can now be expected to soar, pushing credit ratings down.
In that prospering economy, then, the glass was either half full or half empty, depending on whether you were looking from the top or from the bottom. There was no need to exaggerate the hardships at the bottom, as some Democratic candidates did with one misstated statistic.
Senators Kamala Harris, Elizabeth Warren, and Bernie Sanders all said last year that 40 percent of Americans could not come up with the money to pay a $400 emergency expense. In fact, the contrary was the case, according to the Federal Reserve’s annual survey, “Report on the Economic Well-Being of U.S. Households.”
Asked to check all the ways they could pay for a $400 emergency, only 12 percent said they could not pay right now, 45 percent checked “with the money currently in my checking/savings account or with cash,” and 33 percent said they’d use a credit card and pay it off entirely at the next statement. To a follow-up question, 85 percent said that making the unexpected payment would not prevent their paying other bills.
On the other hand, 25 percent told the Federal Reserve that they were just getting by or finding it difficult to get by. That number is troubling enough, one bound to spike as stay-at-home orders continue. The economy was not “healthy” for those folks in the first place, and will not be so for many more.
Improvements will come not from the stalemate of left and right, or from their manipulating statistics, but from a new ideology of practical realism that honors the complex facts, without distortion. The free-market system is the one we have, and it can work for virtually everyone if everyone in government and business works for everyone. Too idealistic? Naïve? Probably.