For economy watchers, the title of the report released Monday by the Federal Reserve,
must inspire a feeling akin to what drivers on the highway experience
when they see the twirling lights of police cars on the side of the road
near the scene of a major accident. You know you shouldn’t stare, and
you know what you see might make you sick, but you nevertheless end up
rubbernecking anyway. It’s human nature — we can’t stop ourselves from
goggling at disaster.
And so it is with the Survey, which the New York Times’ Binyamin Appelbaum
calls ”one
of the broadest and deepest sources of information about the financial
health of American families” that we have. One look at the title tells
you all you need to know: Here, in all their gory detail, will be found
the brutal details on what happened to Americans in the immediate
aftermath of the worst economic disaster since the Great Depression.
The median net worth of the
American family fell by 38 percent between 2007 and 2010, from an
average of $126,400 to $77,3000. Median income fell by 7.7 percent.
It
was the worst decline in both categories since the survey started in
1989.
The distribution of the losses tells us that the middle
class took the brunt of the damage, in terms of both net worth and
income. But there are some interesting statistical oddities. For the
lowest-income quintile of the American public, income actually rose by
about 4 percent. Meanwhile, the top 10 percent of Americans saw their
net worth tick up slightly.
The housing bust explains the
divergence. Middle-class Americans tend to have most of their wealth
invested in their homes. The nationwide collapse in housing prices
clobbered home equity, but the poor and the rich were mostly insulated
from the damage. The fact that income rose, slightly, for the poorest
Americans
is still a bit of a mystery.
The
Federal Reserve’s report doesn’t draw any policy conclusions from the
data, however, and that’s unfortunate. Because even though the economy
has improved somewhat since 2010, the huge effects of the crash are
still very much with us, as proven by high unemployment, a barely
conscious housing market, and extremely tentative GDP growth. And the
Fed, as Christina Romer, Obama’s first chairwoman of the Council of
Economic Advisers, reminded us in
Sunday’s New York Times, is the only entity capable of actually
doing something about it.
Romer
concedes that the U.S. economy needs help on multiple fronts, including
fiscal stimulus and relief for homeowners facing foreclosure.
But
neither is likely to happen, at least not before the presidential
election. As a result, the Fed is the only plausible source of immediate
help for the American economy. It was set up as an independent body
precisely so that somebody can do what’s right when politicians can’t or
won’t.
The Fed, as is clear from its own published
data, understands the depths of the crisis as well as anyone. The Fed
also has tools to address it, either by targeting a slightly higher rate
of, or engaging in another round of
quantitative easing to inject more liquidity in the economy.
Aggressively
deploying either tactic would doubtless spur more squawking from
Republicans, whose worst-case scenario is that a resurgent economy
endangers their effort to take control of the White House and the
Senate. But what’s surprising is that we aren’t hearing more squawking
in the opposite direction — from the economic advisors who are still
working for Obama. Congress won’t do anything and the White House can’t —
where’s the Fed?
(Credit: Reuters/Carlos Barria) 
