My Two Cents

Dashed expectations

Chris Farrell Feb 23, 2009

There are a lot of factors accounting for the borrowing boom–and bust.

But one factor that may be underappreciated is that many people had a reasonable expectation that the borrowing would pay off.

Incomes typically pick up during an economic expansion, justifying the increased household debt. In a sense, the rule of thumb many of us carried in our mind was that a rising tide lifts all boats, right? Financial optimism had been the right approach for much of the postwar period. For example, according to the Economic Policy Institute, in the 1969 to 1979 economic cycle inflation-adjusted household income grew 4.5%, from 1979 to 1989 by 6.5% and from 1989 to 2000 by 8.3%.

It’s the recnt period that different. From 2000 to 2007 real household income fell by 0.6%. What’s happening today is a massive downward adjustment in growth expectations.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.