Chalking up the losses of 2008
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TEXT OF INTERVIEW
Kai Ryssdal: It was tough to turn away earlier this year as the stock market went into its spiral. In part it was a watching-a-train-wreck thing. Because, one hopes, anyway, that 777-point, single-day losses on the Dow aren’t going to come around too often. But it was an equally intensely personal thing for a lot of us, because as the Dow and the S&P dropped, so did our retirement savings, our college funds and a lot of other investments that we use to measure personal wealth. We turned to Robert Reich, a regular commentator for this program as you know, to talk more about those losses and how we’re dealing with them.
Robert Reich: Incomes are dropping, partly because people are losing jobs, or they are losing hours on the job — that means that we are seeing median incomes continue to drop. But also we’re seeing people who have savings, their nest eggs are dropping or disappearing. People’s homes have been their major nest egg; those homes have dropped, in some places around the country, 20 percent in value. The S&P 500 stock index has lost about 36 percent since January. A lot of 401(k)s and IRAs depend on that. Well, that means that people have about 30 to 40 percent less in their mutual funds.
Ryssdal: And now, you’re a policy guy right? You’re not a straight economist. But I have to ask the question of what does that translate into? That loss of wealth, whether it’s perceived, right — because none of us have cashed out our IRAs yet — what does that do to the way we behave?
Reich: It means we don’t have enough money to buy, or if we do have a cash flow, a lot of us are far more reluctant to buy anything that’s extraneous. But you see, when Americans pull back, as they are pulling back from the malls, from spending, that is entirely rational from the standpoint of individual consumers — they ought to do that, they ought to save more, they have to save more. But, from the standpoint of the economy as a whole, it is irrational, because it means that there are just not enough buyers for all the goods and services that we, as an economy, are producing, which in turn means more layoffs.
Ryssdal: How much ground do you think we’ve lost? I mean, companies are either not hiring or laying off people, they’re cutting wages and benefits. How long is it going to take us to get back to where we were before this whole thing happened?
Reich: Well that’s the biggest question, Kai. The consensus though, seems to be that 2009 is going to be a very bad year and we’re not going to get back on our feet and the economy turned around until, at earliest, 2010. The problem here, Kai, is that nobody knows where the bottom is, and that itself generates a great deal of fear.
Ryssdal: But the point is, we’ve lost so much ground, even after a recovery in late 2009, if we’re lucky, it’s going to take us some time to get back to what we’re used to having, right?
Reich: Well, if you’re talking about “used to” in terms of getting the stock market back to where it was in 2004 or 2005, well, it could take a very long time. If you’re talking about getting incomes back to where they were in 2000, which is about the highest they were, adjusted for inflation, that could take easily another five, six, seven, eight years. So, it will come back. The real question for people is how long, and how much pain in the interim.
Ryssdal: Grim as all of this is, I need you to help me find some cause for optimism. Other than the fact that the economy will eventually recover, what else is there for us to look forward to?
Reich: Well Kai, first of all, just relatively speaking, the American economy in the late ’90s, the early part of this decade, was in wonderful shape. But even before the bubble people were living OK. The poor were still having a hard time, but America was not a poor place. So, even if we go back to the mid ’90s in terms of housing values and stock values and a lot of other things, we’re not all that bad off.
Ryssdal: Robert Reich. He teaches public policy at Berkeley. He writes books too, the latest one of which is called “Supercapitalism.” Bob, thanks a lot.
Reich: Thank you, Kai.
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