Public Policy Options to Build Wealth for
America’s Middle Class
CHRISTIAN E. WELLER AND AMY HELBURN
The economic crisis of 2007 and thereafter—the Great Recession—took a heavy toll on family wealth. Wealth declined by about $20 trillion (in 2010 dollars) from its peak in June 2007 to its trough in March 2009. This was the sharpest wealth drop since the Federal Reserve started to collect these data in 1952.1
This unprecedented wealth decrease is worrisome in itself. Yet it is all the more troubling in light of the increasing economic risk that Americans have faced in recent decades. Wealth is a store of future income that can be drawn upon in the case of retirement, unemployment, illness, or injury. It allows families to smooth consumption over their lifetime, even when incomes and expenses change. The chance that families will have to rely on their wealth for such smoothing has risen substantially as Americans have taken on more and more economic risks in their lives.
A sharp drop in wealth can also mean that many families are caught in a vicious cycle of low wealth. Families with little wealth are poorly situated to send kids to college and to choose a degree that suits their abilities. They cannot easily switch jobs to match their particular skills or let their creative spirits take hold and start a business. The level of wealth that is necessary to invest in a secure future has grown over time as the responsibility for the costs of education, health care, and retirement has shifted onto individuals. Many families had to put offexploring a new career, starting their own business, or sending their kids to college when wealth dropped sharply in the Great Recession.
Wealth is at the heart of economic security and opportunity. Yet the long-term shift of risk from employers and the government onto workers and their families has made it harder for Americans to build wealth. Workers face slower income growth and longer unemployment spells, and families have to pay for an increasing share of the growing costs of such big-ticket items as health care, housing, energy,