Scope of the crisis: Impact and aftermath

The Great Recession ranks as worst since
World War II

But it was not the Great Depression

The jump in unemployment was biggest in
post-was era

The persistence of high unemployment was
uncommonly severe
The consequences for job losers and new job
entrants have been uncommonly harsh

Economic crisis:
Government responses

Most special government actions were familiar:




Temporary tax reductions
Extensions of unemployment benefits
Increased government investment in buildings, roads,
technology
Unusual federal actions:



Generous health insurance subsidies for laid-off workers
Massive grants to state governments
Emphasis on protecting education & training
Economic crisis:
Political reaction to government response

The average voter:
“Why aren’t things better already?”

The average opposition politician:
“The other guys’ program made things worse.
..And look what’s happened to the deficit!”

The average political supporter of the stimulus:
{Embarrassed silence.}
Scale of the employment challenge
Rise in Unemployment Rate after the End of Two Economic Expansions
Change in Unemployment Rate
(Percentage Points)
6
5
2008-09 recession
4
1981-82 recession
3
2
3.4 pctg. pts.
1
0
-1
-12
0
12
24
Months before or after previous business cycle peak
36
48
49 months
Fall in Payroll Employment after the End of Two Economic Expansions
Percent Change from Business-Cycle Peak
of Payroll Employment
8
1981-82 recession
6
2008-09 recession
4
+6.8 pctg. pts.
2
0
-4.0 pctg. pts.
-2
-4
-6
-8
-12
0
12
24
Months before or after previous business cycle peak
36
48
49 months
Rise in Unemployment Rate in 2008-2009 Recession & Recovery
Change in Unemployment Rate in 2008-09 Recession and Recovery
(Percentage Points)
12
10
Las Vegas
8
6
4.2 pctg. pts.
4
U.S. total
2
3.3 pctg. pts.
0
-2
-12
0
12
24
36
Months before or after previous business cycle peak
48
48 months
Fall in Payroll Employment after the End of Two Economic Expansions
Percent Change from Business-Cycle Peak
of Payroll Employment
4
0
-4 pctg. pts.
U.S. total
-4
-8
-9.7 pctg. pts.
-12
Las Vegas
-16
-12
0
12
24
36
48
Months before or after previous business cycle peak
48 months
Loss of household wealth
Index of Real U.S. House Prices, 1975-2011
House prices in 1980 = 100
200
200
180
180
160
160
140
140
U.S.A.
120
120
100
100
80
80
60
1974
60
1978
1982
1986
1990
1994
1998
2002
2006
2010
Sources: Federal Housing Finance Agency and U.S. Department of Commerce, Bureau of Economic Analysis.
Index of Real U.S. House Prices, 1975-2011
House prices in 1980 = 100
+90%
200
200
180
180
160
160
140
140
U.S.A.
120
120
100
100
80
80
-30%
60
1974
Las Vegas
60
1978
1982
1986
1990
1994
1998
2002
2006
2010
Sources: Federal Housing Finance Agency and U.S. Department of Commerce, Bureau of Economic Analysis.
U.S. Stock Market Prices, 1950-2011
S&P stock index (deflated using 2005 prices)
1,800
1,800
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
800
800
600
600
400
400
200
200
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Source: Standard and Poors composite stock index.
0
Ratio of Net Household Wealth to Household Disposable Income, 1952-2011
Net wealth / Income ratio
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
Source: Board of Governors of the Federal Reserve System, Flow of Funds Accounts.
2000
2004
2008
2012
4.0
Automatic social protection
With cross-national comparisons
Net Income Replacement in the Initial Period after Job Loss in 21 OECD
Countries, 2005
Net benefit / Net earnings in employment (%)
90
80
78
Italy
Finland
Spain
Norway
Denmark
Canada
54
Netherlands
51
United Kingdom
45
49
Ireland
45
Australia
40
New Zealand
50
69
Sweden
60
69
66
68
France
60
68
68
71
68
70
67
Germany
70
80
62
56
41
30
20
10
Country
Portugal
Switzerland
Austria
United States
Belgium
Japan
Greece
0
Source: OECD.
Maximum Duration of Unemployment Insurance Benefits in 21 Countries, 2007
Duration of unemployment benefits
(in months)
50
48
40
30
Maximum U.S. total in 2008-2012
= 22.8 months
23 23 24 24 24
20
18 18
16.8
Italy
Japan
UK
9
Austria
6
9
10
Canada
6
7
USA
10
12 12
14 15
Source: OECD.
Australia **
New Zealand **
Belgium *
Denmark
Spain
Portugal
Norway
Finland
France
Switzerland
Netherlands
Ireland
Sweden
Greece
Germany
0
Stimulus programs
Special programs for the hard hit

Unemployment benefit extensions of up to 73
weeks - - giving a total of 99 weeks protection





Length of extension tied to state unemployment rate
Increases in monthly food stamp allotments
Aid to the states for social assistance to
children
Doubling of budget for training the
unemployed and hard-to-employ
Increases in EITC and Child Tax Credit
Special programs for the not-so-afflicted

Federal income tax cuts, phased out for folks
with high income

Payroll tax cut: 2-percentage-point reduction
in Social Security tax

Special grants to Social Security recipients &
VA recipients who do not pay income taxes
Impact of the Recession on Disposable and Before-Tax Market Income (per
person), 1997 – 2011
2007-IV = 100
104
103
101
100
100 100 100
100
100
100
100
99
99
99
99
99
100 100
99
99
Disposable
income
98
98
97
96
97
94
93
92
93
92
92
90
88
100
91
90
92
92
93
93
Market
income
Impact of the Recession and Stimulus Package on Government Transfer
Payments (per person), 1997 – 2011
2007-IV = 100
125
125
123
120
120
123 123
121 121
121
119 119
120
115
Government
transfer
payments
113
110
108
105
106
103
100
101
101
95
99
99
100
100
99
98
94
90
92
92
90
85
90
91
92
92
93
93
93
93
Market
income
Combined Impact of the Recession and Stimulus Package on Net Transfers from
the Government, 1997:IV – 2011:IV
Dollars per person
(2005 $)
1,500
1,000
Change in government benefits
(per person)
500
+ $1,070
0
-500
- $1,080
Change in tax payments
(per person)
-1,000
-1,500
-2,000
2007.0
2007.5
2008.0
2008.5
2009.0
2009.5
2010.0
2010.5
2011.0
2011.5
2012.0
Payroll Employment in Las-Vegas-area Construction Industry, 1980-2011
Las Vegas construction employment
(Employment in 2000 = 100)
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
1980
0
1985
1990
1995
2000
2005
2010
U.S. Assembly of Motor Vehicles, 2008-2011
Percent of average vehicle assemblies in 1994-2007
100
80
-21%
60
40
-69%
20
0
2008
2009
2010
2011
2012
Impact of the Recession on Disposable and Before-Tax Market Income (per
person), 1997 – 2011
2007-IV = 100
104
103
101
100
100 100 100
100
100
100
100
99
99
99
99
99
100 100
99
99
Disposable
income
98
98
97
96
97
94
93
92
93
92
92
90
88
100
91
90
92
92
93
93
Market
income
Composition & timing of the stimulus
Expected Stimulus Spending under the American Recovery and Reinvestment
Act of 2009, 2009-2015
Billions of current dollars
700
Fiscal relief for state governments
600
500
$129
Direct income assistance & services
Infrastructure / technology investment
400
300
$390
200
$46
$22
100
$141
$65
0
2009-2010
Fiscal years
Sources: Congressional Budget Office and Joint Committee on Taxation.
2011-2019
$22
Expected Stimulus Spending under the American Recovery and Reinvestment
Act of 2009, Fiscal Years 2009-2015
Stimulus Spending as % of Potential GDP
3.0
Fiscal relief for state governments
2.5
Direct income assistance & services
Infrastructure / technology investment
2.0
1.5
1.0
0.5
0.0
2009
2010
2011
2012
Fiscal year
Sources: Congressional Budget Office and Joint Committee on Taxation.
2013
2014
2015
Economic Crisis & Social Protection
Impact and remedies

What is old:


Automatic stabilization
Standard gov’t reactions –


What is new:



Tax cuts / UI benefit extensions / Gov’t capital projects
Massive federal aid for state governments
Unusual focus on protecting education & training
What Congress avoided:

Huge investment in public works

Congress worried the spending would be too slow