Introduction to Sociology

Recovery from the Great Recession

The Great Recession of 2007-2009 was brought on, at least in part, by the lending practices of the early twenty-first century. During this time, banks provided adjustable-rate mortgages (ARM) to customers with poor credit histories at an attractively low introductory rate (often after convincing the buyer that the property’s value would quickly increase to such a degree that the unrealistic debt would become realistic). After the introductory rate expired, the interest rate on these ARM loans rose, often dramatically, creating a sizable increase in the borrower’s monthly mortgage payments. As their rates adjusted upward, many of these “subprime” mortgage customers were unable to make their monthly payments and stopped doing so, known as defaulting. The widespread implosion of these mortgages, which had themselves been used to secure other forms of risky borrowing and speculation, put a strain on the financial institutions that had made the loans, and this stress rippled throughout the entire global economy.



Figure 3. Median income dropped during the recession for all income levels, but the upper-class faired best in its aftermath. By 2016, the median income level for the upper-income tier was 2.4 times that of the middle-class level and 7.3 times that of someone in the lower-income level.

The United States fell into a period of high and prolonged unemployment, extreme reductions in wealth (except at the very top), stagnant wages, and loss of value in personal property (houses and land). The S&P 500 Index, which measures the overall share value of selected leading companies whose shares are traded on the stock market, fell from a high of 1565 in October 2007 to 676 by March 2009. Today, however, unemployment rates are down in many areas of the United States, the Gross Domestic Product increased 4.6 percent in the second quarter of 2014 (US Department of Commerce–Bureau of Economic Analysis), property owners have noted a slight increase in the valuation of housing, and the stock market appears to be reinvigorated.

While these and several other factors indicate the United States is on the road to recovery, many people are still struggling. The size, income, and wealth of the middle class have been declining since the 1970s— effects that were hastened by the recession. Overall, the number of adults in the middle class fell by ten percent between 1971 and 2011. Before the recession, the median household income for a lower-income family was $26,923, but that amount actually dropped to $25,624 by 2016. While the income levels of middle-income Americans remained more stable over this same time period (declining from around $78,000 to $74,000 and then back up to $78,000 in 2016), only higher-income houses saw significant financial gains, other furthering the income disparity between the lower, middle, and upper-class.^[1] Today, wealth is distributed inequitably at the top. Corporate profits have increased more than 141 percent, and CEO pay has risen by more than 298 percent. G. William Domhoff (University of California at Santa Cruz) reported that “In 2010, the top 1% of households (the upper class) owned 35.4% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 53.5%, which means that just 20% of the people owned a remarkable 89%, leaving only 11% of the wealth for the bottom 80% (wage and salary workers).”

One indicator of general economic conditions is the rate at which individuals are accessing the country’s safety net or social welfare programs. Between 2000 and 2013, the number of people relying on the Supplemental Nutrition Assistance Program (SNAP, formerly known as the “food stamp” program), climbed from 17,194,000 to more than 47,636,000. The sharpest increase paralleled the subprime mortgage crisis of 2009, with the rolls rising from 28,000,000 to more than 40,000,000 individuals receiving food assistance in a span of two years (United States Department of Agriculture 2014). In 2018, the number of SNAP recipients was 40,324,000, the same number as in 2010^[2]

The economic downturn had a ripple effect throughout the economy. For instance, it delivered a significant blow to the once-vibrant U.S. automotive industry. While consumers found loans harder to get due to the subprime mortgage lending crisis and increasing fuel costs, they also grew weary of large, gas-guzzling sport utility vehicles (SUVs) that were once the bread-and-butter product of U.S. automakers. As customers became more aware of the environmental impact of such cars and the cost of fuel, the large SUV ceased to be the status symbol it had been during the 1990s and 2000s. It became instead a symbol of excess and waste. All these factors created the perfect storm that nearly decimated the U.S. auto industry. To prevent mass job loss, the government provided emergency loans funded by taxpayer dollars, as well as other forms of financial support, to corporations like General Motors and Chrysler. (General Motors, once the world’s largest corporation, declared bankruptcy in 2009.) While the companies eventually recovered, the landscape of the U.S. auto industry was changed as result of the economic decline.