What has become known as “The Great Recession”, or the U.S. Economic Crisis that officially began in December 2007 and lasted until June of 2009, continues in many parts of the United States. This is despite the fact that many people, businesses and the U.S. stock market as a whole are doing quite well. If you travel around the U.S. today, especially to the larger cities and to the tourist areas, it would be easy to conclude that the 2nd worst period of economic decline in the history of the U.S. has clearly ended. But the reality is quite the opposite……many areas of the country are still struggling economically.
In my home town, Chicago, the numbers are anything but encouraging:
- Housing prices are still 20% below their peak in 2007. And they are only growing at a rate of 1% per year. The volume of sales is also low, currently less than 50% what it was in 2007. (source: Trulia.com).
- Although the national unemployment rate currently is 4.9%, the unemployment rate in the Chicago area is 6.3% (source: Bureau of Labor Statistics, February 2016).
- State and city governments are broke, and are cutting benefits and raising taxes because they can’t continue to cover the shortfall in revenues. Some of this is self-inflicted, as both the State of Illinois and City of Chicago have huge unfunded pension liabilities that they still haven’t been able to resolve.
- There are numerous examples of economic hardship: The State of Illinois is delaying payments to local school districts, and cutting a variety of services, like closing state parks because they can’t afford to collect the garbage. They are also delaying payments to vendors and lottery winners, because there is no money to pay them with. Note that this is all nearly 6 YEARS after the end of the crisis!
So despite today’s low unemployment, low inflation and fairly strong growth in the United States overall (3.12% in 2015), many parts of the country still have not recovered from the crisis. In fact, I would argue that these relatively good national statistics mask the day-to-day challenges that millions of Americans are facing. For them, it still feels like 2008 and 2009, and there is no clear end in sight.
I find that many people in Peru are unaware of the breadth and depth of the U.S. Economic Crisis, because in part, Peru has done extraordinarily well in comparison. The following chart shows the unemployment rate and GDP growth rates side by side for Peru and The United States:
GDP Growth Rate:
Source: The World Bank
Peru was able to “weather the storm” quite well (with the possible exception of 2009), even though many countries around the globe were adversely affected by the recession in the United States. This was partly due to rising raw materials prices that created an economic boom of sorts, and shielded Peru from the slow-down in the U.S. As the saying goes, when the U.S. sneezes, the rest of the world catches a cold. And yet by many economic measures, Peru stayed quite healthy during this entire period.
Although I now reside in Lima, during the years above I lived in the Chicago area. I was fortunate enough to remain employed, although the company I worked for froze salaries, laid-off many people, and cut all non-essential expenses from 2009 until 2012. In general, those who were still employed were asked to do much more work for the same or less wages. Many of my friends were not so lucky. They lost their jobs, some lost their homes, and a few (primarily from the financial stress they were dealing with) even lost their marriages. We saw friends and neighbors literally abandoning their homes, because they could no longer afford the payments, and even if they could, the home was not worth what they owed the bank. Although walking away meant losing their down-payment, years of mortgage payments and certainly destroyed their credit rating, many chose to do it rather than face eviction.
In this context, it is easier to understand the surprising rise of someone like Donald Trump or Bernie Sanders, who have tapped into voter frustration perhaps better than any other presidential candidate before them. In my opinion, many who are supporting Trump in particular are doing so not because they agree with the outlandish things he is saying, but because they feel like he is the best chance for them to exit the economic nightmare they have been living. As Peruvians know, fear and frustration with the current circumstances can be a powerful motivator to vote for someone who offers some solutions, even if those solutions seem far-fetched and drastic. Until Americans once again feel like they are able to participate in the “American dream”, economics will continue to greatly impact politics, and we shouldn’t be surprised as politicians use this to their advantage.
M.Sc. Paul Stuart