How the Stock Market & U.S. Household Income Diverged After the 2008 Crash

Share:
Above, a still from the documentary "The Power of the Fed," which looks at the Federal Reserve policy of quantitative easing, developed in the wake of the 2008 crash. Under QE, the stock market and U.S. median household income have followed differing trajectories.

Above, a still from the documentary "The Power of the Fed," which looks at the Federal Reserve policy of quantitative easing, developed in the wake of the 2008 crash. Under QE, the stock market and U.S. median household income have followed differing trajectories.

July 13, 2021

When the COVID-19 pandemic hit, the Federal Reserve tried to avoid economic meltdown by lowering interest rates to near-zero and buying up trillions of dollars in securities — an attempt to make it cheaper for cash-strapped Americans to borrow money and to shore up the financial system.

As reported in the new FRONTLINE documentary The Power of the Fed, that same strategy helped the economy recover after the 2008 financial crisis, but it also left many American households behind.

Mohamad El-Erian — who in 2009 ran the world’s largest bond fund, PIMCO — told FRONTLINE the Fed’s response to the 2008 crash benefitted investors more than ordinary American workers.

“The Fed was very successful, in terms of moving asset prices. It was much less successful in moving the economy,” El-Erian said in The Power of the Fed, resulting in what he called a major disconnect “between Main Street and Wall Street, between the economy and finance.”

To illustrate that disconnect, FRONTLINE has charted the performance of two major stock indices — the S&P 500 and the NASDAQ Composite — against the growth of median household income in the U.S. from 2005 to 2019, the latest year for which household income data is available.

According to Michael Ash, a professor of economics and public policy at the University of Massachusetts Amherst, median household income is a useful tool for assessing how ordinary Americans are faring: “a good Main Street measure of economic wellbeing,” he told FRONTLINE.

Growth of the Stock Market vs. U.S. Household Income

Charting percent change, 2005 to 2019

  • Household Income
  • S&P 500
  • NASDAQ

How U.S. median household income compared to the Stock Market from 2005 to 2019.

FRONTLINE obtained median real household income data from FRED, an economic database run by the Federal Reserve Bank of St. Louis. FRED uses the definition of income from the U.S. Census Bureau’s Current Population Survey Annual Social and Economic Supplement, which includes retirement income and pensions but not capital gains or property sales. Historical S&P 500 and NASDAQ values were sourced from Yahoo Finance. To compare stock values to real income, which is adjusted for inflation, FRONTLINE divided the S&P and NASDAQ numbers by the Consumer Price Index, a standard inflation measure released by the Bureau of Labor Statistics.

For the full story, watch The Power of the Fed when it premieres Tuesday, July 13 at 10/9c on PBS stations (check local listings), or stream it on FRONTLINE’s websiteYouTube and the PBS Video App.


Dan Glaun, Abrams Journalism Fellow, FRONTLINE/Columbia Journalism School Fellowships

Dan Nolan

Dan Nolan, Lead Designer for Digital, FRONTLINE

Twitter:

@d_jnol

In order to foster a civil and literate discussion that respects all participants, FRONTLINE has the following guidelines for commentary. By submitting comments here, you are consenting to these rules:

Readers' comments that include profanity, obscenity, personal attacks, harassment, or are defamatory, sexist, racist, violate a third party's right to privacy, or are otherwise inappropriate, will be removed. Entries that are unsigned or are "signed" by someone other than the actual author will be removed. We reserve the right to not post comments that are more than 400 words. We will take steps to block users who repeatedly violate our commenting rules, terms of use, or privacy policies. You are fully responsible for your comments.

blog comments powered by Disqus

More Stories

As Biden Announces End of U.S. ‘Combat Mission’ in Iraq, 21 FRONTLINE Docs Provide Context
President Biden said July 26 the U.S. combat mission in Iraq is drawing to a close. These documentaries illuminate the Iraq War and its aftermath.
July 28, 2021
THE PEGASUS PROJECT Live Blog: Major Stories from Partners
A curated and regularly updated list of news articles from our partners in “The Pegasus Project,” a collaborative investigation among 17 journalism outlets around the world.
July 28, 2021
‘A disturbing shooting’: Salt Lake County district attorney says officer was justified in killing handcuffed man
An exasperated district attorney tried to get two points across at a Thursday news conference. The first is that as the law is currently written, Longman’s shooting was justified. The second is that Gill thinks the law should be changed. 
July 22, 2021
What Is the Fatemiyoun Brigade and Why Does It Make the Taliban Nervous?
Amid the withdrawal of U.S. troops, Taliban leaders claim Iran is mobilizing its proxy militia the Fatemiyoun for civil war within Afghanistan.
July 20, 2021