2005-2007, When Things Were Really Bad

I ran across a story by AP’s Stephen Ohlemacher recently that summarized economic realities over the period of 2005-2007, gathered as census data (the American Community Survey), which report was released on December 9. The census takers look at three million households annually and give annual information for geographical areas of 65,000 or more (providing three year averages for communities between 20,000 and 65,000). The sum and substance of the report is that Americans were making less money, costs were rising, but we consumed at a record pace, well beyond our means… leading up to a meltdown in every segment of American life.

The analysts at the Associated Press produced the following conclusions from the numbers they reviewed:

1. Median household income dropped in 79% of the cities and towns. Incomes dropped in the wealthiest communities as well as the poorest. Nationally, incomes dropped by 4.3%, to $50,007.

2. The poverty rate increased in 70% of the cities and towns. Nationally, the poverty rate increased from 12.4 % to 13%.

3. The unemployment rate increased in 71% of the cities and towns. Nationally, the unemployment rate increased from about 4% in 2000 to 6.6% in 2005-2007.

4. Median home values increased in 92% of the cities and towns studied — doubling and tripling in many cities, mainly in California.

My take? America caught a bit of expansion at the beginning of the decade and rode a “growth” wave that did not really exist. We fought a war with borrowed money while reducing taxes, our educational system did not keep up with the competition, the dollar plunged, and we still acted as if we were in a growth economy. With government reducing barriers to corporate excess and leaving volatile and unproven markets remain virtually without regulation, the financial world borrowed itself to take advantage of this unfounded consumer exuberance.

People and companies borrowed to their expectations, not to the reality that was around them. The government set the example and made sure there were no brakes on that train. Sooner or later, someone had to pay dearly for this miscalculation. That would be us… now and for a very long time. Perhaps we will learn our lesson… perhaps not.

I’m Peter Dekom, and I approve this message.