Depression, not recession, looming in America

While it seems that the nation’s leaders are still hesitant to use words like “recession,” the grim reality is that they may need to adopt a new word altogether — depression.

Several weeks ago, New York Times columnist Paul Krugman described what he termed a growing “crisis of faith” in the economy as woes that began in the subprime housing sector have moved from one market to the next. As Krugman put it: “The ever-widening financial crisis has shaken investors’ faith in the whole system. People no longer trust assurances that fancy financial instruments will function the way they’re supposed to — after all, they know what happened to people who thought their subprime-backed securities were safe, AAA-rated investments.”

Many are also pointing to the massive cost of the war — which is approaching $3 trillion, according to a new book by Joseph Stiglitz and Linda Bilmes — as a major cause of this recession. But our problems predate this war. A real similarity between our current moment and the Great Depression is the massive growth in income disparity that has emerged as the dominant feature of the economic and social landscape. In March 2007, two leading economists reported that the top 1 percent of Americans, whose incomes exceed $350,000, received the largest share of the national income since 1928, the eve of the Depression. The income of the top 300,000 Americans nearly matched that of the bottom 150 million combined. Furthermore, the size of this gap has doubled since the 1980s.

Our own city provides a perfect case study of this problem. It’s not just the poor staying poor and the rich staying rich, but the wealthy rapidly accumulating greater and greater assets while the real wages of the working class stagnate and decline. In New Haven, we’ve seen lowered wages and increased foreclosures coexist with the most unprecedented endowment growth in our university’s history and a major increase in University properties at home (the Bayer site in West Haven) and abroad (labs in China, for instance).

Income disparity is no accident. Rather, it is a deliberate result of the increased power and wealth of multinational corporations over the last several decades — the result of deregulation, free trade and globalization, coupled with the vicious attack on organized labor and workers’ rights in our country today. These conditions have allowed corporations and private capital to run amok in our economy, producing outcomes like the subprime disaster that triggered our current economic crisis. They’ve also allowed the elite new and dangerous ways to accumulate capital — particularly through the rise of hedge funds and private equity investing, which are rapidly reshaping the American economy.

Corporate universities like Yale are implicated in this unprecedented accumulation of capital, too. The rapidly growing wealth of Yale and the 135 other universities with endowments of more than $500 million has occurred particularly because of these new kinds of investments. The 2007 National Association of College and University Business Officers’ annual endowment study found that university endowments have seen tremendous increases in the amount they allocate to hedge funds (278.6 percent) and private equity (475 percent) over the last 10 years. Yale’s investment strategies have been no different. But these forms of capital are largely unregulated, hidden from public oversight and the accountability to which publicly traded companies are subject.

What’s more, terrible labor practices, human-rights abuse and environmental destruction are typical of the companies in which these hedge funds and private equity firms invest.

At the same time, good jobs are increasingly scarce, wages are stagnant, health-care costs are rising and credit is more and more difficult to obtain. Increased income disparity — and the inability of workers to have a say in the conditions of their own employment — isn’t just affecting the poor. It’s also pulling the middle class down.

The New Deal was, at its core, a response to these same kinds of problems. It represented an understanding that, as long as such enormous income disparity persisted, the economy would be in ruin and working people would remain unable to provide for their basic needs. While the New Deal made major strides in reversing income inequality, the proliferation of right-wing public policies have returned us to a similar economic breaking point.

We need to stop being confused by those who tell us we can’t actually understand the changes in our economy from where we stand. We should instead start looking around and asking the question: How can we address income inequality in the spaces we inhabit? It is only by asking and acting upon that question that we will build the kind of movement needed to win the New Deal of our time — fair trade, universal health care, immigrant rights, affordable housing and workers’ rights — and envision more truly progressive futures.

Hugh Baran is a junior in Davenport College. His column runs on alternate Thursdays.


  • Jake S.

    I've posted this to Digg. The American people need to hear this and prepare accordingly.

  • Gideon

    I don't care if the rich are getting richer, as long as the poor are also getting richer. The wage gap is not the problem. And as far as the sub-prime mess, the extravagant loans were hailed in the past as helping the poor, which of course turned out not to be the case. I'm tired of people who blame the 'corporations' for everything. Companies can be ethical or unethical, and I'd much rather see the economic power in this country distributed among diverse companies started by entrepreneurs, than see the Russian model, where the state takes over as much of the economy as it get its hands on.

  • Anonymous

    Wow. Nothing like an undergrad positing a goom and doom scenario which he has no understanding of. Here's a tip, Hugh. If you are an American Studies major (which you are), you probably shouldn't be writing about economic matters such as a possible depression when professors who have PhD's in the subject can't agree on this matter.

    Oh, and hedge funds are definitely risky, but I'd hardly call them dangerous to society. Give me a break.

  • Yale Econ 08

    This editorial is a word salad of disconnected ideas, unsubstantiated claims, arguments that show no causation, and borderline economic and financial inaccuracies. Before Mr. Baran -- arguably one of Yale's most liberal students (while overwhelmingly socially liberal, most Yalies tend to be financially moderate or conservative) -- writes on Economics, he would be advised to become more familiar with the subject than by perusing a single newspaper article.

  • Daddy

    I disagree with most of these comments that are just cheap and unfounded accusations used to discourage an intelligent columnist. Edwards was right about the agents of status quo-- they'll do anything to denounce any progressive viewpoint. Hugh's column is very insightful. I think all of you need to do your research on the widening income gap and other atrocious inequalities and disparities in order to fully grasp Hugh's comments otherwise you will be more frustrated by your own ignorance and unwillingness to accept truth and change.

  • Anonymous

    More power to you, Hugh! What you write is what we need to read--a perspective that is not merely the economic.

  • ac

    Why is it that some people simply refuse to acknowledge that our glorious market is not perfect? Don't get we wrong, I don't think parallels to the 1930s are appropriate yet. I see no dust bowls or people traveling the rails for work. Corporations are not the bane of our civilization, but a little government regulation could go a long way after years of growing corporate waste, greed and, quite frankly, bloated checks to executives (Don't fiscal Conservatives purport to wanting fiscal responsibility?). After yet another day of record losses, I think it's time we seriously consider the r-word. As for "I don't care if the rich are getting richer, as long as the poor are getting richer"…well, the latter half of that sentence is not happening. This is a problem. Where in rising prices, greater difficulty in getting student loans, layoffs, and credit crunches do you find the poor getting richer?

  • The Indy Voice

    There's more truth in this article than all of Fortune magazine or any of the other neo-liberal back patting rags. Hugh don't let some of the comments posted here from these authority loving mediocre minds discourage you. Experts brought us the Iraq war, the Cold war and Vietnam. And most "experts" receive their titles because the majority of authority worshippers are too ignorant to recognize (and to keep score) that these so-called experts don't know what the hell they're talking about!

  • Anonymous

    This is a column that absolutely had to be written. Once again, Baran has hit the nail on the head. And if Mr. Baran wants to get food with me later, he knows where to find me.

  • Recent Alum

    This is another satire piece, like Peter Johnston… right? right???

  • Talisar

    How many displaced people can we house for the cost of the 2 new residential colleges? All fun and games to those priveledged enough to attend Yale, but deadly serious to those outside the hallowed gates.

  • Christian Nihilist

    *Sigh* Wealth is created by people. It is not in a fixed amount which is then distributed arbitrarily among rich and poor. The fact that one person has accumulated more wealth than another does not indicated that the wealthier is somehow hoarding or stealing from the poorer. Your understanding of economics is based on the myth of zero sum economics of Marx and co.<p>
    Please read about or take a good class in economics. "Wealth of Nations" is a good place to start. Recession and Depression have specific definitions and you often don't know you are in a recession until later. You can't randomly use the terms to describe a situation that is unfavorable to some.<p>
    I am also troubled by corporate coziness with our government and shortage of small entrepreneurs. As well the cost of the war will not help us. <p>The 'victims' of the subprime crisis had no business taking out loans in terms they didn't understand or couldn't meet. If they were lied to or somehow tricked that is fraud. But most knew they couldn't afford the payments if the rates went way up and gambled anyhow.

  • ac

    *sigh* that people create their own wealth is not really the point. Baran is talking about policies that should be pursued, and thus the role of government. I would also argue that the government policies in place make it infinitely easier for those who happen to start with greater wealth can perpetuate it. That's not people creating their own wealth. That's also not really my lament, that's just a statement of what is perceived. I would also argue that the Fed pumping 200 billion dollars in aid to help banks refutes the idea that solely people are creating their own wealth.

    While the ultimate responsibility for taking out loans they one doesn't understand falls on himself, this crisis also isn't just affecting people whose houses are being foreclosed. Hundreds of analysts will be losing their jobs -- are those people also required to put quotations next their title as victim, or are they allowed to call themselves victims because they have apparently created their own wealth?

  • Lott

    Two economists that everyone really needs to familiarize themselves with is Dean Baker and Robert Kuttner. You can find them at The American Prospect.

  • Sweetness

    Why do the rich stay rich (or get richer) and the poor stay poor? Usually, it's because the rich make smart decisions and work hard, and the poor, not so much.

    Consider someone who invested 7 years and hundreds of thousands of dollars in undergraduate and graduate degrees from Yale. Now consider a 24 year old mother, high school dropout, unmarried and unemployed. Is it a grave injustice of society that the educated person will likely earn multiples of what the mother will? And that the mother faces a grim future? Most often, you reap what you sow. In the United States, opportunity abounds, but in our "bread-and-circuses society" fewer and fewer people reject the "victim" label and pursue success.

  • Anonymous

    Let's continue to consider this absurd comparison of the absolute extremes. Let's look at the person who has had hundreds of thousands of dollars invested on their education. Has that person invested the money, or has his/her parents spent that money? A vast majority of the time, the parents are paying for at least the undergraduate education. Has the single mother had parents invest that much money into her education? Probably not. Has this well educated person really had to do anything and claim any personal responsibility other than to get good grades? No. And let's face it, when that's the only duanting task you have to face from ages 8-18, it's not that hard to do.

    It's not a grave injustice that the well educated person will make more money than the mother. That's life. It IS an injustice when this well educated person thinks that somehow he has "pursued success" or "made it on his/her own" when a fantastic education has literally been handed to them, and he judges others that haven't had such luxuries afforded to them on the basis that they haven't "pursued success and opportunity". It's laughable when Yale students or former Yale students talk about society and judge others on the false assumption that everyone has equal opportunities of success.

  • Sweetness

    Thanks for discussing my absurd analysis. For the record, my background is lower-middle class and my undergraduate degree is from a Big Ten school when tuition and all costs ran about $6000/year.

    How do you explain the myriad of success stories of people who rose from the lowest rungs of society? Or the many "failures" of children born into wealth and privilege? Of course, some have to fight harder than others; it's much easier to "hold serve" than to come back from 0-40 but it can be done. The vast majority of people are where they are because of the decisions they have made and the effort they have dedicated to improve themselves and their circumstances.

    People don't need a silver spoon to graduate from high school and avoid becoming parents before their time.

  • Anonymous

    Sweetness, I agree that most people don't need a silver spoon to avoid becoming parents before their time or graduate highschool, but why on earth are you equating being poor to single parenthood, unemployment, high school dropouts etc? The two aren't mutually exclusive. The fact is many people are poor and still work. What would you say to an immigrant cleaning lady who works 8 hours a day, and still makes very little money. I would say she's working hard and not making bad decisions, but started off at a less privileged place than you did, or I did.

    Since you have decided to look at the most extreme example of impoverishment, then let's look at the other extreme opposite. Donald Trump is super rich because he made good decisions, right? He's gone bankrupt more than once. His success has a little something to do with his father bailing him out early and often with vast amounts of cash. Now, let's take someone from a lower-middle class income: Do they have as much margin for error? no. They get one chance, and that's about it.

    I certainly congratulate you on becoming successful given some barriers you may have faced. You should be proud of that. With regards to the myriad of success stories from lower rungs -- I congratulate those people because they are truly exceptional. But that's just it: they are exceptions. Often these success stories also provide for their children the best that they can: they give them support, send them to good schools, etc. Essentially they give them the best opportunities afforded to them because they don't want their children to struggle like they did. They acknowledge that it is damn hard to become successful in life. So then if they are willing to acknowledge that certain things give people greater opportunities then why would they refuse to acknowledge that unequal starting points have something to do with success?

  • Sweetness

    Anon, I respect and agree with most of what you say, but your very first question has me scratching my head. People who drop out of high school, and young, single parents are overwhelmingly more likely to be poor than those who graduate and wait for parenthood. Yes, many workers are poor, but are we allowed to consider the possibility that the value of their work may be small, and therefore, their wages fair?

    As for the cleaning lady, she puts in an honest day's work, but the hard truth is that what she does has very limited value. A lack of ambition, or more delicately, desire to improve one's lot, is rarely rewarded. Perhaps her cleaning job is a marked improvement for her, and she's just poor by our standards, but not by the standards of country that she left.

    But your use of an immigrant in the example reminded me of a point from the book, The Millionaire Next Door, which I think is an excellent read, a very interesting study of wealth and income. Many immigrants come to America and really do make their fortunes. However, the children of these first-generation millionaires are significantly less likely to match or exceed their parents wealth, often squandering their inheritance, in fact. So while it's true that the privilege that you mention is most often a huge asset, it is not a guarantee. Another tidbit from the book: 80-85% of millionaires are first generation, and have been consistently so over the last century.

    I'll try to make my way back to some points from the article. I agree that many corporate executives are overpaid, often outrageously so. The $200m package that Home Depot paid Gary Dinardo to go away after he did very little good for the company is beyond absurd. But I do not believe that just because a worker's wage is low that they are underpaid and deserve more. Shop with me at my local Walmart and you will see dozens of people who should thank their lucky stars for the $7.50 minimum wage, because the value of their work is significantly lower. A disgruntled comfort comes with victim status- an absolution of personal responsibility.

  • ac

    It's funny because both Sweetness and anon are right. People can succeed despite starting off with very little; there are also certainly barriers that would prevent most people from succeeding.

    I think Hugh's initial point was that people who are working 40 hours a week shouldn't be wondering if their children will eat, or wonder if they will make rent while executives are making beyond obscene amounts of money. Ultimately, as far as i'm concerned that is the matter at hand. It is not for the single mother that I don't really mind if the government taxes me and redistributes my income, it is for the child that has not made any "bad decisions". Sure, that child MIGHT be able to succeed anyway, but why make it so that every single external factor in their life is driving them away from succeeding while a few ridiculously rich continue to get breaks from the government?

  • rjbig2000

    We need to stop being confused by those who tell us we can’t actually understand the changes in our economy from where we stand. We should instead start looking around and asking the question: How can we address income inequality in the spaces we inhabit? It is only by asking and acting upon that question that we will build the kind of movement needed to win the New Deal of our time — fair trade, universal health care, immigrant rights, affordable housing and workers’ rights — and envision more truly progressive futures.

    Hugh is dead on here. The coming collapse will be an opportunity for mankind to address these issues as we form a new worldwide economic model. This will be a pivotal point in human history if we can create a model that actually can distribute opportunity and resources in a fair and equitable way. Should a person get to eat just because they were born in one place instead of another ?

  • Doug Cook

    immergrents that are here legally are offered any and all the rights as anyother citizen in this country, even the immergrents who are here unlawfully are protected and given accsess to social programs and free medical ect… Maybe we should reconsider what a criminal is, I always thought it was someone who knowingly breaks the law. Those immergrents that are here unlawfully are breaking the law. I do not blem them for coming here and if the setuation were reversed I would do the same, however if I were cought I would suffer the concequence for my unlawfull act and not expect the country I have unlawfully entered to change thier laws on my behalf. Doug Cook