Margy Waller, Sandra Gustitus, and Jonny Finity
The Mobility Agenda
For the Community Action New Narrative Initiative
September 2008
There are a lot of places to point fingers when trying to assign
responsibility for recent failures of major corporations and the
perceived need for a “bailout” of other institutions.
Among those who deserve some of the blame are employers, particularly
those who pay low-wages and don’t offer employment benefits like health
care and paid sick days. One in three jobs – over 40 million in our
economy – pay low-wages, and most of these are without benefits.
In recent years, wages for these jobs, like too many middle income jobs
as well, have been flat or even declining. At the same time, costs for
gas, food, and other everyday expenses have continued to rise.
Workers were forced to go into debt to cover this loss in purchasing
power. People at all income levels borrowed against the home equity
that they had accumulated within the housing bubble in order to pay for
cost increases. This debt, over time, artificially inflated the economy
to levels sustained only by consumers’ willingness, and need, to assume
more debt. Workers across the country have found themselves spending on
credit to survive while saddled in a spiral of ever decreasing net
worth – and for it, everyone has suffered.
Our colleague Dean Baker, at the Center for Economic Policy Research, put it this way:
The
main cause of the economy’s weakness is not insolvent banks and lack of
credit; it’s the loss of $4 trillion to $5 trillion in housing equity
as a result of the bubble’s partial deflation. Families used their
equity to support their consumption in the years from 2002 to 2007, as
the savings rate fell to almost zero.
With much of this
equity now eliminated by the collapse of the bubble, many families can
no longer sustain their levels of consumption. The main reason that
banks won’t lend to these families is that they no longer have home
equity to serve as collateral. It wouldn’t matter how much money the
banks had, they are not going to make mortgage loans to people who have
no equity.
And house prices are not going to come back.
This is like Pets.com. We are not going to get the price of $200,000
homes in central California back up to $500,000.
The main
problem in recovering from the recession will be finding ways to boost
demand other than household consumption…. In the short-run, we will
have to rely on government stimulus to help spur growth and reduce
unemployment…. demands for stimulus were not extraneous to the
legitimate goal of a bank bailout bill. Fiscal stimulus must be central
to any serious effort to boost the economy.
With
workers stuck in bad jobs and prices soaring, no one’s debt is going to
disappear. It will take bold policy changes, to effect the kind of
change we need.
To strengthen the labor market, policymakers
could 1) make changes and extensions to unemployment insurance options,
2) invest in good jobs created to strengthen our infrastructure, build
green, and improve transit options, and 3) guarantee paid sick days for
all workers. Any of these improvements would strengthen our economy for
all of us.