We give a hat tip to Paul Krugman for recalling the infamous 2008 statement by Phil Gramm, then-presidential candidate John McCain’s top economic advisor, that what Krugman is now calling the “lesser Depression” was really nothing more than a figment of our “lamestream media”-addled minds, “a mental recession.”
As we learned from the Federal Reserve Monday, what conservatives were anxious to dismiss then as “a mental recession” had a devastating cost on working-class families.
According to the Fed’s latest survey of consumer finances, the median net worth of American households fell 38.8 percent between 2007 and 2010. Inflation-adjusted family income before taxes fell 7.7 percent.
As several news reports noted, this means that “the recent economic crisis left the median American family in 2010 with no more wealth than in the early 1990s, erasing almost two decades of accumulated prosperity.”
The report says that much of this drop is due to “a broad collapse in house prices”—a direct result of conservative economic policies that allowed a housing price bubble to inflate through Wall Street financial speculation and government deregulation, and then burst with devastating consequences on ordinary homeowners.
Now that we have seen this bubble and burst, conservatives in Congress have been actively blocking efforts to repair the damage. Republican presidential candidate Mitt Romney supports killing off or weakening the Consumer Financial Protection Bureau and the financial reform legislation that congressional Republicans have been working to hobble from the day it was created, so that Wall Street can be free to repeat the cycle of boom for them and bust for us.
Romney also had taken the position that the housing foreclosures that were a consequence of the housing bubble burst should “hit bottom” without any federal intervention to help struggling homeowners. Meanwhile congressional Republicans have refused to get behind the measure that could do the most to help stabilize the housing market and boost the Main Street economy: resetting mortgages to their current value. If banks were required to write down the value of their mortgages to their actual current value rather than the bubble-inflated values before the crash, that would free up billions of consumer dollars that would then shore up the economies of communities around the country. By one estimate, this one step alone would generate enough activity to create more than 1 million jobs.
There is a fevered effort on the right to use the Fed report as ammunition against President Obama’s efforts to repair the economic damage that occurred before he became president. If anything, the Fed report proves that President Obama’s misstep was not doing too much federal intervention, it was doing too little, allowing himself to be constrained by the very conservatives who now ridicule the American Recovery Act as being ineffectual. It was, of course, not ineffectual, it was insufficient. Now that we have more documentation on how deep the hole was, we need to ratchet up the progressive response: Immediate action to use government resources to get people working again, end the hemorrhaging of public sector state and local government jobs, and block the cuts to economic security programs for the middle class and struggling families.
A main focus of the Take Back the American Dream conference will be forging the strategy for restoring the health of the middle-class economy. Register now; online registration closes Wednesday at 8 p.m. Eastern/5 p.m. Pacific.