The Obama Recovery

August 27, 2013

In Blog

The 5% recovery: Why most are still in recession

Published: Monday, 26 Aug 2013 | 12:22 PM ET

By: | Senior Writer

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People looking for work stand in line to apply for a job during a job fair in Miami on May 2.

How strong the economic recovery has been since the Great Recession ended in 2009 probably depends on viewpoint.

For those in the top 5 percent, the recovery has been pretty good.

As for the other 95 percent, well … maybe not so much.

Post-financial crisis wealth disparity has been well-chronicled.

Shari Olefson, author of “Foreclosure Nation,” and Tanya Marchiol, CEO of Team Investments, discuss the decline in recent housing data and what it indicates about the recovery.

Federal Reserve Gov. Sarah B. Raskin drew widespread attention with this speech in April that showed how poorly the lower income levels have fared during the recovery, particularly because those demographics have their wealth concentrated in housing and are hit far more severely by falling prices.

The unemployed in lower-income groups also take a hit because they have a more difficult time finding jobs that pay at a rate commensurate with the positions they lost.

(Read more: Jobless picture is worse than you think: Gallup)

Finally, history has shown that highly accommodative monetary policy widens income disparity by awarding speculators and penalizing savers. While the S&P 500 is up nearly 150 percent since the March 2009 lows, that’s most helped those heavily invested in stocks.

The University of California, Berkeley has produced some seminal research on this topic.

But this series of charts, put together by Charles Hugh Smith at, helps put the sharply skewed recovery into perspective.

(Read more: Ugly durables numbercomplicates the taper debate)

He uses a handful of metrics to show that, despite the climb in gross domestic product and other data points, the recovery has not made its way through the economy.

Those points are: full-time employees as a percentage of the population; median household income (down 7.2 percent); real personal income less transfer receipts (government payments); and overall income disparity, which has yawned over the past decade.

The conclusion isn’t pretty:

Huge leaps in the income and wealth of the top 5 percent mask the decline of income and wealth of the bottom 95 percent. Average all wealth and income and it appears that the economy is expanding to the benefit of all, when it fact only the top 5 percent have escaped the recession; the recession never ended for the bottom 95 percent.

And there’s more:

An even better way to create an illusory expansion is to simply not measure trends that would reveal a deepening recession. For example, what percentage of student loans are purposefully taken out as a substitute for income, i.e. used to pay basic living expenses rather than education? Anecdotally, there is plentiful evidence that a great many people are signing up for one class at the local community college in order to get a student loan to live on.

Finally, Smith lays waste to the idea that more expansionist monetary policy from the Fed and further “stimulus” from the government through deficit spending will make things any better:


Things are falling apart—that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand.