Recovery for the Rich

Brendan Reim, Contributing Writer

In the headlines these days, it appears that the United States is finally bouncing back from the Great Recession. Since the trough of the recession, the S&P 500 has more than doubled and equities are continuing to improve. An economy-wide $25 trillion in wealth has been created since the recession. Why, then, is consumer spending so abysmally low?

The answer is that the majority of Americans are still feeling the pain of the recession. The rich have almost exclusively reaped the wealth generated by the recovery. Much of the wealth created since the recession can be attributed to the stock market expansion. The rich were able to recover faster because they hold much of their wealth in financial assets, and as the stock market recovered, so did they.

In contrast, the lower income brackets have much of their wealth stored in their home’s value. The collapse of the housing market diminished much of their wealth. The housing market is recovering, but still lags behind the explosion we have seen in equities.

The root of the rise in inequality is the slow growth in wages that Americans have experienced since the 1960s. The decline in real income growth led those in the middle- and lower-income brackets to borrow more to compensate for the decline in wages. By late 2007, household debt to income was a staggering 128 percent. The 2008 recession was a major debt correction, plunging many people deeper and deeper into debt.

An effective recovery has to provide relief and growth to all, and it’s clear that this recovery is just leading us down the same path that caused the recession in the first place.

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