The Price of Civilization_ Reawakening American Virtue and Prosperity - Jeffrey D. Sachs [5]
Figure 2.1: U.S. GDP per Capita and Happiness Trend Line, 1972–2006
Source: Data from U.S. Bureau of Economic Analysis.
Source: Data from General Social Survey.
The Jobs and Savings Crisis
America’s unemployment rate is nearly 9 percent of the labor force and has been stuck there for two years.9 In all, 8.6 million jobs were shed from the peak employment in 2007 to the trough in 2009. Even before the current crisis, the 2000s had the lowest growth of jobs of any decade since World War II.10
The job-market pain is not felt evenly. The unemployment rate is by far the highest among lower-skilled workers, reaching 15 percent among workers with less than a high school education and 10 percent of those with a high school diploma or some college. Workers with at least a bachelor’s degree have come through the crisis with more modest, though still very real, losses. Their unemployment rate hovered around 4 percent as of December 2010, up from around 2 percent in 2006.11
The widening gap in labor-market outcomes of those with and without at least a bachelor’s degree is a theme to which we will return many times. In the figure below, we see the trajectory of earnings of workers according to their educational attainment, all relative to a high school diploma. In 1975, those with a bachelor’s degree earned around 60 percent more than those with a high school diploma. By 2008, the gap was 100 percent.
Figure 2.2: Real Salary Growth Limited to Bachelor’s and Advanced Degree Holders, 1975–2007
Source: Data from U.S. Census Bureau, Current Population Survey (2008).
The 2008 financial meltdown also deepened the financial distress of millions of Americans who kept their jobs but lost their homes and savings. The fall in housing prices beginning in 2006 spelled the end of a couple of decades in which middle-class households treated their homes as ATM machines, drawing on the ostensible value of the home through home equity loans. With the collapse of the housing bubble, millions of households found that their homes were now worth less than their mortgages, leading them to default on their mortgage payments.
This widespread financial distress is the end stage of a generation-long decline in Americans’ propensity to save. The national savings rate, which measures how much of the nation’s income is put aside for the future, tells a striking story. Saving for the future is the main kind of self-control needed for a household’s sustained well-being. Yet starting in the 1980s, the personal savings rate out of disposable income began to fall sharply, as we see in Figure 2.3, and began a small recovery only after the calamitous 2008 financial crisis. In the three decades leading up to 2008, the nation as a whole, through countless individual decisions of households, lost the self-discipline to save for the future.
What occurred at the household level was echoed in Washington. Just as households were abandoning their personal financial prudence, Congress and the White House lost the discipline of budget balance. The trajectory of the budget deficit is shown in Figure 2.4. For the period 1955 to 1974, the budget deficit was mostly below 2 percent of GDP. Then, from 1975 to 1994, it increased markedly, mostly above 3 percent of GDP. A squeeze on spending (both domestic and military) combined with higher tax collections during the years 1995 to 2002 temporarily brought the budget deficit back under control. Yet as soon as the surplus was achieved, the politicians were eager to spend it for political gain. In 2001, the new Bush administration cut taxes sharply while increasing military spending, thereby sending the federal budget back to deficit. The deficit soared in the wake of the 2008 financial crisis, which lowered tax collections, led to a financial bailout, and prompted Obama to push for a two-year stimulus package.
Figure 2.3: Personal Savings Rate as Percentage