As talk of a looming recession increases in volume, looking back to the Great Recession in 2008 to assess the effectiveness of how we as a nation responded to it seems like a good idea.
It’s always healthy to learn from one’s mistakes and process the past, right?
And there were mistakes. The government approved $700 billion in 2008 in part, large part, to buy toxic mortgage-backed securities, packages of irresponsibly approved loans going into default. Depending on which analysis you read, the real amount of the bailout ended up being well over $10 trillion.
The basic point I want to stress is that the strategy for rescuing the economy was first and foremost to save the system by saving banks by throwing money at them to prevent their total collapse. A small portion of the overall bailout package was targeted to help some homeowners refinance, but that portion did little to save the great many homeowners in dire economic distress because of the severity of the recession — nor did it protect homeowners against the substantial losses in wealth they endured as they watched the values of their homes plummet.
A different approach to tending to the health of our economy, one focused on people’s welfare, would have been more effective and humane, aiding the hardest hit segments of our nation’s people first while also bailing out banks.
In fact, as I’ll suggest with examples, a people-centered economy — one that emphasized the economic well-being and health of the people themselves who are supposed to be served by the economy — would actually help us, if not avoid recession, minimize the damage to people’s lives.
We can learn much from re-examining the Great Recession to apply elsewhere in formulating people-centered policies to foster a recession-resistant economy.
Re-Visiting the Foreclosure Crisis
To grasp more concretely how a people-centered economics would alter the functioning of the U.S. economy in healthier directions, let’s take a closer look at the foreclosure crisis that largely caused our latest Great Recession. Our leaders sought to solve the problem and save the system from total collapse by bailing out the banks from the toxic mortgages they issued which were leaving them high and dry because borrowers could not repay them.
But while the banks were bailed out, the “homeowners” were still foreclosed upon and evicted. Homes were left empty. An abundance of houses flooded the market, driving down property values for those still in their home. Millions more Americans thus found themselves underwater in their mortgages, witnessing their chief investment and wealth asset disappear. Gazillions in wealth were lost, destroying the housing market and eroding the financial wherewithal of the consumer (whose prowess accounts for more than 2/3 of the economy). But the banks were saved. The system was saved.
How might a people-centered economic imagination have approached the problem differently — even within the context of capitalist framework and even while saving the system? Putting human need first, an economic approach that serves people as opposed to one in which people serve the economy, would have sought first to keep people housed.
Imagine if instead of prioritizing the banks, our leaders had sought to save the system by bailing out homeowners? If the trillions of dollars had been dispensed to those with unpaid mortgages instead of the banks? To those people who could have paid off their mortgages, made good on the “toxic loans,” and arguably have bailed out the banks while staying in their homes? It would have prevented the destruction of the housing market and the death spiral of the overall economy.
This brand of economic thinking, however, would approach governing and the crafting of economic policy with a clearer vision of what the objective of a government and a political economy should be. And that is to serve the people and organize the production and distribution of resources to most efficiently serve human need, first and foremost.
In this sense, this approach promises to pave the way to a more humane economy and world.
I believe other examples bear out this argument as well.
The $15.00 Minimum Wage
A recent study from the Illinois Economic Policy Institute highlights the many ways raising the minimum wage would significantly improve Illinois’ economy. The study contends, “By raising the minimum wage, Illinois can boost worker incomes, reduce income inequality, increase consumer spending, grow the economy, generate tax revenues, and decrease taxpayer costs for government assistance programs.”
In a nutshell, raising the minimum wage to $15 would both save taxpayers money by decreasing the need for public assistance for the working poor (saving $87 million alone in food stamp outlays, according to the study), increase the revenue the state brings in from income and sales tax (generating, the study says, $380 million in new state tax revenue), and overall generate $19 billion in economic activity.
Directing resources through public policy not to the wealthy, as our economic policy tends to do, but to the worker more than arguably contributes more powerfully to the health of the economy and overall society.
Tackling College Debt
College debt levels have topped $1.4 trillion and, according to many economists, constitute a major drag on our economy. Think about it: college graduates saddled with debt are reluctant, and frankly unable, to purchase a home, start a family, or create a small business, constraining key sectors that drive economic growth and vitality under capitalism such as the housing market and entrepreneurial development.
According to a study from the Levy Institute, canceling the $1.4 trillion in student debt would spur economic activity to the tune of creating between 1.2 and 1.5 million new jobs in the first few years, creating tax-paying citizens who buy houses, start families, create businesses, and so forth.
These three policy possibilities I’ve discussed, focused on the health of people, the very root of the economy, demonstrate a clearer path to a healthier economy, one that, even when recessions come, will provide us with an approach to minimize damage to people by focusing on their well-being first, recognizing the people living within the economy are its foundation.
Tim Libretti is a professor of U.S. literature and culture at a state university in Chicago. A long-time progressive voice, he has published many academic and journalistic articles on culture, class, race, gender, and politics, for which he has received awards from the Working Class Studies Association, the International Labor Communications Association, the National Federation of Press Women, and the Illinois Woman’s Press Association.