The numbers are grim. The median American family lost 40 percent of its net worth between 2007 and 2010. Middle class incomes fell and fewer families could afford to save, while those who could socked money away for emergencies, not college or a home or retirement. The survey by the Federal Reserve offers a sobering view of the slog ahead — and a road map for what still needs to be done by government at every level.
The Fed hardly caught middle class Americans by surprise with Monday's report. But it shows in greater detail the depth of the economic crisis and the impact it likely will have on the nation for generations. The net worth of the median American family (richer than half, poorer than the other half) dropped to $77,300 in 2010 from $126,400 three years earlier. That drop erased nearly two decades of accumulated prosperity. Most families suffered from the loss in housing values caused by the real estate collapse. The loss fell most heavily on the middle class, because wealth for middle Americans is largely tied up in their homes.
Families with incomes in the top and bottom 20 percent of the population sustained smaller hits. Wealthier families have more diversified income streams and investment portfolios that better protect them from swings in wages and housing. Poorer families had less to lose to start with; many also received public grants and assistance under the federal stimulus package. Still, the recession remade the jobs landscape, driving millions into lower-paid and part-time work that lower wage-earners had historically used as stepping stones into the middle class. And the loss of income power depressed consumer demand, which continues to weigh down the global economy.
Things would have been worse without the federal stimulus. But sustaining and strengthening the recovery will require more robust action by the federal government. That means passing a transportation bill and other jobs bills, persuading banks to agree to meaningful mortgage relief, reaching a long-term budget deal that reduces the deficit with a combination of less spending and more revenue, and strengthening the oversight of financial services. President Barack Obama has the opportunity during a speech today in Cleveland to more directly address the canard of the presumptive Republican nominee. Mitt Romney argues with increasing fervor that the middle class will do best if Washington sticks with the tired conservative philosophy of less regulation and more tax cuts.
But it was a hands-off Washington that enabled the mortgage and financial crisis to mushroom. As the Federal Reserve survey makes clear, the decline in incomes was most pronounced among highly educated families, those headed by middle-aged people and those living in the fast-growing South and West — including Florida. States and local governments also can help by not resurrecting the same go-for-broke development policies that encouraged the real estate bubble in the first place. The first step in recovering two decades of household wealth is not repeating the mistakes that caused it to evaporate.