Bloomberg Businessweek - USA (2020-05-04)

◼ ECONOMICS Bloomberg Businessweek May 4, 2020

27

Therichhaveadvantagesingoodtimesand
bad.Inaneconomicshock,“theissueofwho
hasliquidityandwhohasaccesstocreditlines
becomesveryimportant,”saysSalvatoreMorelli,
aneconomistatCityUniversityofNewYorkwho’s
spentmorethana decadestudyinghowcrises
affectinequality.“Thepeoplewhohaveliquidity
jumpinandbuythoseassets,”hesays,thenprofit
handilywhentheeconomyrecovers.
After2008,fortunesatthetopballoonedeven
asthemiddleandworkingclasseswerehobbled
byderailedcareers,stagnantpay,andperma-
nentlossesontheirbiggestinvestments—their
homes.From 2009 to 2012 ,whentheeconomy
wassupposedlyinrecovery,theearningsofthe
bottom50%ofAmericansfell1.5%,whilethetop
1%’sincomerose21%andthetop0.1%’searnings
jumped24%.By 2012 thetop0.1%ofAmericans
wereearning$6.7milliona yearonaverageand
collectivelycontrolleda fifthofU.S.wealth,more
thanatanypointsince1929.
Anotherincreaseininequalitymaybeinev-
itable.“Anyrecession,regardlessofthecause,
hits poor people disproportionately,” says
MartinEichenbaum,a professorofeconomicsat
NorthwesternUniversity.
Downturns also especially penalizethose
enteringorexitingthejobmarket.Millennialswho
graduatedduringthelastrecessionpaida long-
lasting penalty for their bad timing. In 2016 the
average American under 35 was still earning less
than the same age group in 2007, according to the
Survey of Consumer Finance. The Federal Reserve
Bank of St. Louis found that the median household
headed by someone born in the 1980s had 34% less
wealth in 2016 than earlier generations held at the
same age. Baby boomers approaching retirement
will likewise struggle, especially if they lose their
jobs and must tap savings early.
In normal times, being laid off can be devastat-
ing. Losing your job in a recession, when it’s harder
to find another, often means you never recover. A
U.S. study covering 1974 to 2008 found men laid
off during periods of high unemployment lose out
on the equivalent of 2.8 years of lifetime earnings,
twice as much as men let go in better times.
What made the Great Recession great was that it
waylaid people whether they lost their jobs or not.
The main reason is that middle-class Americans
have much of their wealth tied up in their homes,
and their equity collapsed with the housing bub-
ble. According to University of Bonn researchers
in a forthcoming paper in the Journal of Political
Economy, the bottom 90% of Americans consistently
hold about half of U.S. housing wealth, but they have

verylittleexposuretothemarkets—thetop10%own

about90%ofstocks.Whenstocksreboundbutreal

estatestagnates,thewealthgapwidens.

Morethan 26 millionAmericanshavefiledfor

unemploymentbenefitsinfiveweeks,a levelof

claimsthatimpliesa joblessrateofaround20%—

twicethelastrecession’speakof10%.Andsome

economistsbelievea 30%rateis possible.If these

joblossessinkthehousingmarketagain,thedam-

agewillbethatmuchworse.MarkZandi,chief

economistforMoody’sAnalytics,estimatesabout

15 millionAmericanhouseholdswithmortgages

couldstop payingif theeconomystaysclosed

throughthesummerorbeyond.

Evenif theeconomysnapsbackquickly,thepan-

demiccouldcreatenewinequalityfaultlines,such

asa gapbetweenthosewhohavetheluxuryofwork-

ingfromhomeandthosewhocannot.Researchers

attheUniversityofChicagohavecalculatedthat37%

ofU.S.jobs“canplausiblybeperformedathome.”

Fordecadestechnologyhasbeentransform-

inghowpeoplework,benefitingthetech-savvy

whilepushingmillionsintoprecariousgigjobs.

Thevirus-inducedrecessionis acceleratingtech-

nologicalchange,somethingwe’veseeninpre-

viousdownturns.Inone 2012 studyeconomists

foundthatsincethe1980s,88%ofthejoblosses

in“routine”—oreasilyautomated—positionshap-

penedwithin 12 monthsofa recession.Evenas

otheroccupationsbouncebackina recovery,the

jobslosttoautomationneverreturn.Researchers

atBrookingsInstitutionestimatethatasmanyas

36 millionU.S.jobscouldbeatriskif thatdynamic

playsoutoncemore.

Themoretheeconomyis transformedbythe

virus,themorepeoplewillbeleftbehindina

recovery.“Therearecertainindustriesthatare

notgoing tocomeback,”saysMichaelBordo,

aneconomicsprofessoratRutgersUniversity.

DATA: THOMAS PIKETTY, EMMANUEL SAEZ, AND GABRIEL ZUCMAN; TAX POLICY CENTER

HowU.S.WealthDistributionChangedDuringTwoCrises

GreatDepressionthroughtheaftermathofWorldWarII, 1929-50

Financialcrisisandaftermath,2007-16

Shareofwealthheldbythe

top0.1%

Shareofwealthheldbythe Topmarginalincometaxrate

bottom90%

“In 2008 they

got away with

it in a sense.

They’re going

to find that

they can’t stop

the pitchforks

this time”

10

32% 84%

17

16 24

19%

29

40

24% 31%

35%