This week, Weekend Reader brings youDown The Up Escalator, by Barbara Garson. which will be released on April 2. Drawing on Garson’s interviews with a wide range of Americans who have felt the brutal consequences of the recession, she couples criticism of Washington’s economic policy with the personal stories of average citizens across the country. You can purchase it here.
Economists describe recessions as either V shaped, meaning sharp down, then sharp back up; U shaped, where the economy muddles around at the bottom for a while; or W shaped— that’s the dreaded double dip. The Great Recession was experienced as a classic V by my three investors, but it morphed into an L for the Pink Slip Club Four, who live on wages.
That may sound like the way the world works. “There’s nothing surer,” as the old song says, “the rich get rich and the poor get poorer.” But oddly enough, that eternal verity is usually suspended during recessions.
During normal-shaped recessions, companies tend to maintain their plants and retain their core workers while they wait for business to pick up. In the meantime (in between time), they compete on price and take less profit.
As a result, the share of national income that went to investors used to decline during a recession, while the share that went to employees increased. I’m not trying to tell you that workers got rich during previous recessions or that the rich became penniless like Richard Bey. But their shares of the total income took a temporary Robin Hood turn.
This time it’s been different. Corporate profits were 25–30 percent higher at the official end of the Great Recession than before its onset. Meanwhile, wages as a share of national income fell to 58 percent. That’s the lowest the wage share of income had been since it began to be recorded after World War II. The Financial Times (my source for these statistics) calculated that “if wages were at their postwar average share of 63 percent, U.S. workers would earn an extra $740bn this year [2012] or about $5,000 per worker.”
Investors not only took a bigger share of the current national income during the recession years; they also found themselves in possession of more of the accumulated national wealth.
According to the U.S. Federal Reserve Bank, the middle class (the middle 60 percent of us) lost a greater percent of its wealth during the Great Recession than either the poor or the rich. By 2010 the wealth of the median American family was lower than it had been in the 1990s. The Federal Reserve calculates that about three quarters of the recession wealth loss was due to the housing bust. That makes sense since homes are where working Americans store the bulk of their wealth and their children’s inheritance. And during the recession, homeowners lost equity and entire houses while investors, like it or not, took possession.
To understand how this wealth shift plays out over the generations, I got back to my GI coffeehouse friend Duane, or rather to his family.
Duane’s children walked away from their inheritance because it was underwater. Whatever money their father put into the Arizona house was washed away when the bubble burst. I asked Duane’s son about the history of home ownership in his family.
He knew that his grandparents owned their home in Cleveland and that Duane’s sister moved in after both grandparents died. But he didn’t know much about the financial details, so he put me in contact with his aunt Claire.
I was surprised and touched by the things Claire remembered hearing from her brother about the GI coffeehouse. “That was forty years ago,” I demurred. But Duane had talked about the place so much, his sister responded, that “you’d think he got his honorable discharge from the Shelter Half [the name of the coffeehouse] instead of the army.” That made me feel bad once more about how I’d let our contact drop.
Claire filled me in on the days after Duane’s discharge when he came back to Cleveland.
“It was a kind of shitty time in the family,” she remembered. Her father, a welder, was out of work. “It started off as a normal layoff. Most years he was off a few weeks for retooling. But this one stretched out. Being home all day waiting meant he got involved with everything going on in the house. Our dad, well, let’s say he had a lot of opinions.
“Anyway, the way I remember it, Duane was hardly at home because that’s when he met his wife. Dad had his opinions about her too.
“No,” Claire said, “there was no big fight, just irritations. The whole family stayed close. Mom adored Duane, and he stayed especially close to my daughter. But it happened to be the first of the long layoffs for my father, and it was probably a good time for Duane and Sue to leave Cleveland.”
Though their father’s unemployment affected the mood of the home, it never threatened the ownership. “It wasn’t like today,” Claire explained, “where you have all these bills to juggle and no idea when the next paycheck will come in. Losing the house was not on the horizon for my folks. Of course they may have tried to hide their worries from us, but as far as I know, even refinancing was never on the menu.”
According to Claire, their father served in World War II and bought their home on the GI Bill. When their mother died, Claire and Duane inherited the place free and clear. Since Claire and her husband lived in Cleveland and were ready for a larger home, they took out a mortgage to buy Duane’s half. It came to about $65,000.
Duane put all or almost all of the money into the first house that he and his wife bought. As far as Claire knew, he transferred that equity from house to house each time he picked up stakes.
“It’s too bad for his kids that he landed up in Arizona at the peak of the market, but real estate was never my brother’s reason for relocating anywhere. Duane wasn’t interested in scenery; he wasn’t interested in real estate. It was always about work he liked where he could keep learning. He always said he wanted to—
“Keep ahead of it,” Claire and I said simultaneously, echoing Duane’s old refrain.
“He was a supervisor on that last job,” she wanted me to know. “He might have been the only person he supervised; it was a small place. It had to do with lasers.”
“So,” I said, bringing us back to real estate, “your parents owned a house they could leave to their two children free and clear, and now one of you owns a house that you can . . .”
“Half a house,” Claire corrected me. “We paid down most of the loan for Duane’s share, but then we took money back out to help my daughter through college. Let’s say that my parents’ whole house was converted into a third of a house and a teaching degree.
“It’s too bad for Duane’s kids about the Arizona house,” she repeated. “But we probably won’t be able to leave our daughter a house either. My husband used to work where they had a company pension, but we don’t have that now. I don’t see how we can retire without selling or somehow taking the rest of the equity out of this house. I like to think that what we passed along to our daughter is a way to earn her own living and buy her own house.”
I’m sure Claire passed many valuable things to her daughter in addition to a formal education. But it remains true that one couple in the grandparent or World War II generation had a house to leave free and clear. Two couples in the next generation will have somewhere between zero and a third of a house to leave.
It may not be entirely fair to say that the siblings moved down in the world or that Duane and his sister “lost” one and two-thirds houses during their working years. But it is fair to say that the current generation of investors owns one and two- thirds more houses. They may not know how to get cash out of them right now, but investors will emerge from this recession owning more of America. The generation that includes Claire’s and Duane’s children will inherit less. They’ll probably earn less too.
From the book Down the Up Escalator by Barbara Garson. Copyright © 2013 by Barbara Garson. Published by arrangement with Doubleday, an imprint of the Knopf Doubleday Publishing Group, a division of Random House, Inc.
