The Financial Blame Game: Who’s At Fault?
Name: Michael Cassady
Question: With the suffering from the financial crisis falling mostly on masses of people who were not responsible for causing it, why has there not been a healthy postmortem and acceptance of responsibility before the victims are made to suffer more from spending cuts and the perpetrators pay nothing for bringing down the house?
Paul Solman: There have been postmortems galore, Michael, blaming the banks, the government, the Fed, the Chinese even. And then there’s the analysis of economist David Kotz of the University of Massachusetts, Amherst:
“The huge gap between the rich and everyone else is not just a moral or ethical problem,” he told me recently. “It is a major factor explaining the severe financial and economic crisis that broke out in 2008.”
Kotz believes increased borrowing, caused by growing economic inequality, helped cause the Great Recession.
If the economy’s going to expand, while profits are going up very rapidly and wages are stagnating or falling, which has been the rule since 1980, then who’s going to buy increased output of the economy? It’s possible only if households borrow to maintain their living standard. And that’s why we’ve seen the huge growth in household debts in the economy, from 60 percent of household income in 1980 to over 120 percent of household income by 2007. This was more than households could carry and that’s what underlay the inability of people to continue making mortgage payments and then the collapse of the banks.
The top 10 percent of American families (those at $109,000 a year or more) now earn half of all income and in the past three decades, says Kotz, the top 1 percent alone doubled their portion of American earnings, from 10 percent to 23 percent. In that same period, the typical American doubled his or her household debt from 60 percent to 120 percent of income. To Kotz, debt fueled the unsustainable housing boom — the bubble that led to the crash.
But is inequality a “perpetrator”? How do you punish it?
Besides, don’t most of us bear some responsibility, Michael? Did we not delude ourselves into thinking housing prices would never decline nationwide? That the stock market would keep going up? (Remember “Dow 36,000”?) That pets.com was the next Microsoft? That the business cycle had been pancaked? How many times did we hear or read that “Americans are living beyond their means,” that social security and especially Medicare were unsustainable? How many times did we say: maÃ±ana? Jeez, I did stories on every one of these warnings, starting in the 1980s! How much attention did people want to pay? Judging by the results, not much.
Were the gullible exploited? Of course. Was fraud in the housing market a major contributor to the crisis? To be sure. Did many of your “perpetrators” make out like bandits? You bet. But to let the perpetrated entirely off the hook doesn’t seem quite right either.