Don’t Buy It

Open up any newspaper and you’ll encounter politicians, analysts and journalists attributing all of society’s economic problems to the 2007 financial crisis. But in reality, there were deep economic problems long before that, especially with respect to wealth and income inequality.

In the decades leading up the crisis, real wages (adjusted for inflation) were stagnant, even while corporate profits were skyrocketing and overall economic productivity was on the rise.

As a result of these factors, wealth moved toward the top of society: today, 84 percent of wealth in the United States is owned by just 20 percent of Americans.

And that’s a problem for two reasons, the first being psychological: studies show that societies with greater levels of inequality have lower levels of contentment overall, with grave psychological consequences for those at the bottom.

The second reason is economic: the United States is dependent on consumer expenditure for economic growth. Since declining wages – and thus, declining disposable income – reduce consumer demand, economic output also declines as a result.

So, as we’ve established, inequality was a problem long before the 2007 financial crisis. But that doesn’t mean that the economic collapse didn’t add insult to injury.

According to the Economic Policy Institute, 25 percent of American households experienced zero or negative net growth in 2009, up from 18.7 percent of households in 2007. And even more shockingly, that number rises to 40 percent when only taking into account African-American households.

Worst of all, individuals facing foreclosure, poverty and unemployment received no federal assistance after the economic crisis. Meanwhile, the financial sector was bailed out by the government.

Taken together, the crisis revealed the intense financial pressure facing households in the United States’ middle- and low-income brackets. In the following blinks, we’ll find out how Americans responded, and whether the downturn led to any meaningful policy changes.