The data is from the Federal Reserve Board's Survey of Consumer Finances and describes what happened to family incomes and balance sheets from 2007 to 2010. It reads like a bomb damage assessment after an air strike.
Incomes declined significantly, with the largest drop, as we might expect, in the upper brackets. The most sobering numbers, though, described the loss in household wealth.
Over that three-year period, the median net worth of all U.S. families fell 38.8 percent, while the mean -- that is, the average -- fell significantly, but less dramatically, by 14.7 percent.
The difference between the declines is significant for our economic recovery. The median is literally the middle, midway between those who are poorer and those who are wealthier. Americans in the middle tend to have a large portion of their equity, their wealth, tied up in their homes -- and we all know what happened to housing values in this recession.
The Federal Reserve report looked further into housing's role in the decline of family wealth and found that if home ownership is removed from the equation, median family net worth dropped from $42,300 in 2007 to $29,800 in 2010, a decline of 29.7 percent
Housing is clearly the key factor. The report states that, "Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices."
As we might expect, the impact of the housing bust was not uniform for all age groups or geographic areas. Hardest hit were families headed by someone 35 to 44 years old whose median net worth declined 54.4 percent, and families in the West where median net worth fell 55.3 percent.
Beyond the raw damage to household equity, the housing market crater was deep enough to produce some structural changes in our economy. There are still large numbers of homes in the country with mortgages that are "underwater," that is with a mortgage balance larger than the market value of the house, and that creates some side effects that slow our economic growth.
Underwater mortgages often put homeowners in a position where they "can't afford to sell" their homes. This in turn makes the local economy the only option for many job seekers who would otherwise be seeking employment anywhere in the country. Since underwater mortgages are more common in areas with depressed economies, underwater mortgages tend to prolong our unemployment problem and slow down our economic recovery.
The recovery from this recession has been agonizingly slow, and a constant rebuke to those who believe that fiscal and monetary policies can fix any economic problem. Keynesian stimulus programs and zero-interest rate policies have proved to be disappointing at best.
The Federal Reserve data on family wealth offers us some insight into why our economic policies have been so ineffective at giving economic growth the push it obviously needs. The answer might be in the depth of the crater in family net worth.
Family net worth affects more than the household balance sheet; it affects the attitude, outlook and basic psychology of the family. A hole this big in a family's accumulated net savings, its wealth, will have a lasting effect on how its economic decisions are made.
We can change interest rates in a matter of hours, and federal spending programs can be launched almost as quickly. But you don't change people's psychology overnight. The effects of the cratered household balance sheets will be with us for at least as long as it takes the housing market to recover.
This is an election year. and the decline in household equity has already been put in play for it fits the predispositions of both parties. The economic recovery from this recession has been disappointing no matter what side you look at it from.
Our recovery is unlikely to speed up, though, until the housing situation turns around, and that could be a while. So far, our efforts to address the housing market issues have been limited to an array of curative programs, each highly praised and equipped with its own acronym and complex rules. These efforts have succeeded in leaving both lenders and homeowners befuddled and the problem virtually untouched.
We should not lose heart. We have survived a devastating hit to our household equity and are still standing. But the sooner we address the housing problem and stop arguing about fiscal and monetary policies whose limitations we already know, the sooner we'll get Americans back to work.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.
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