The Flight from Risk
Samuelson, Robert J., Newsweek
Byline: Robert J. Samuelson
Recession's legacy stymies recovery.
It is becoming clear that the Great Recession has left a deep and possibly lasting scar on the American psyche. From CEOs to ordinary families, we are a nation that is more cautious, more fearful, and more risk-averse. This widespread and--so far--indestructible anxiety has hobbled the recovery and helps explain the slow pace of job creation. The economy's revival depends in part on risk taking, but risk taking is in eclipse.
There is a wall of worry whose cause transcends the recession's severity. We now fear not only what we know but also what we don't. Things happened that were both unpredicted and unimagined: the collapse of major banks (Lehman Brothers, Wachovia); the near death of General Motors; the government's titanic economic rescue efforts--TARP, the Federal Reserve's massive lending, the gargantuan budget deficits.
It's possible, of course, to exaggerate pessimism and underrate Americans' traditional hopefulness. Even the weakened U.S. economy produces almost $15 trillion of goods and services a year and employs 139 million people. Still, the mass uncertainty and fright remain undeniable.
Americans are not merely reducing debts. They're erecting protections against unanticipated adversity. For a record 23rd straight month, more than half of U.S. households expect no income gains in the next year, reports the University of Michigan's latest consumer survey. Only a quarter forecast higher incomes. For many households, the recession's "primary lesson," notes survey director Richard Curtin, "was that the only sure source of financial security was their own savings." In the bubble years, people borrowed because they felt they could repay; now they don't borrow because they worry they can't.
Those with work can see the devastating impact of being without. Two fifths of the unemployed have been jobless for more than six months. In the 2001 recession, payroll jobs dropped 2.7 million, and it took four years for the economy to recover the lost jobs, says Joseph Seneca of Rutgers University. The loss in the present slump was 8.4 million, and only 1 million have returned. It will be much, much longer before all do. With young people entering the workforce, the unemployment rate may not fall below 6 percent for four or five years, Fed chairman Ben Bernanke has warned. …