PLANK JUNE 14, 2012
Yesterday I explained why the Fed's new report on family finances from 2007-2010 shouldn't prompt us to stop thinking about income distribution and start thinking about wealth distribution. Today I'm going to focus on something the Fed report has got me thinking about: the Republican-ness of the 2007-2009 recession and the weak recovery that's followed.
By this I do not mean that Republican politicians are to blame for the recession. As it happens, they are--the recession began on President George W. Bush's watch, and it was a consequence of the sort of lax financial regulation that Republicans (including the Reagan-appointed Fed chief, Alan Greenspan) promoted for years and, amazingly, still promoted. Some Democrats deserve blame, too--notably the Clinton-era treasury secretaries Larry Summers and Robert Rubin. But it was Republicans who pushed deregulation hardest, and who most fervently resisted extending regulatory governance to newly-evolving corners of finance. (This latter strategy, which the political scientists Jacob Hacker and Paul Pierson call "drift," has been crucial in reducing regulation generally, because in Washington it is always easier to prevent something from happening than it is to create new policy.)
So yes, go ahead and blame this recession on the GOP. But that's not what I mean when I say that America's struggling to recover from a Republican recession.
So what do I mean? Take a look at this paragraph, on page 11 of the Fed report:
By region, median family incomes in the Northeast and the Midwest were little changed between 2007 and 2010, while the medians in the West and the South decreased substantially. Those changes in medians stand in contrast to what occurred during the period from 2004 to 2007, when median incomes fell in the Northeast and Midwest but increased in the West and South. These income changes by region mirror the regional pattern of home price changes across the two time periods. During the final years of the housing boom, which disproportionately affected the West and South, median incomes were rising in those regions but falling elsewhere. During the subsequent housing bust, which also disproportionately affected those areas, median incomes were falling there but rising elsewhere. Mean incomes declined across all four regions between 2007 and 2010, though the changes were largest for the South and West.
It's well known that the sub-prime housing bust hit the west and the south harder than the rest of the country. But it was news to me that median family income in the northeast and the midwest saw little net change between 2007 and 2009. I would guess that it declined a bit from 2007-2009 and then rebounded in 2010, but the point remains that by President Obama's second year in office the nation's two most reliably Democratic regions weren't much worse off than they'd been in 2007, and were notably better off than they'd been during the Bush years of 2004-2007, when incomes in the northeast and midwest declined. That may help explain why the Democratic base has remained steadfastly loyal to Obama. The recession didn't hit Democrats all that hard.
It's different for the nation's two most reliably Republican regions, the south and the west. These areas prospered during much of Bush's second term (as measured by growth in median income) because housing prices were zooming upward from 2004-2007 (and very possibly into the election year of 2008). Then the south and the west got socked when the housing bubble burst. Median income declined, and as of 2010 it had not recovered. That may help explain why the Republican base loathes President Obama. The recession and slow recovery hit Republicans very hard.
This regional analysis is far from perfect. It doesn't take into account the fact that incomes for rich people, who tend to vote Republican, began rising in 2010, while incomes for non-rich people did not. (The Berkeley economist Emmanuel Saez has calculated that in 2010 93 percent of the economic recovery went to people in the top 1 percent of income distribution.) And of course it's an oversimplification to suggest that the northeast and midwest are entirely Democratic while the south and the west are entirely Republican. Still, I hadn't before considered that the recession was harder on the red states than on the blue ones. That probably will have some impact on the November election.