 The deep recession the United States entered in 2007, sometimes described as the Great Recession, started with the deflation of a housing bubble. To understand what went wrong in the housing market, one has to understand the role of subprime mortgage lending—loans designed for borrowers with blemishes on their credit records. In 2005 and 2006, subprime mortgage loans made up 23 percent of all home loans written. Yet as recently as the mid-1990s, they were an insignificant share of the mortgage lending market.
 The first three chapters of this report describe the U.S. opportunity in this moment of economic turmoil to lay the groundwork for a just and sustainable recovery. But economic recovery in the United States will be neither just nor sustainable if prosperity and economic stability continue to elude the majority of the world’s people. The recession has been yet another reminder that we live in an interconnected world and that this is not going to change.
 One reason the Great Depression was a prolonged and painful experience was the lack of cooperation among the major economic powers of the day. Protectionist trade policies in Europe and the United States might have been politically expedient but did little good for anyone. An encouraging difference today has been the unprecedented cooperation among economic powers.
 For a large share of Americans, the U.S. labor market no longer works as a reliable way to build a stable career and support their families. This was true before the job losses of the current recession (as of October 2009, the country had 7.6 million fewer jobs since the start of the recession in December 2007). And unless there are structural changes in the economy, it will be true again once the recession has passed. Down on the bottom rungs of the economic ladder, where too many people who once had middle-income careers now reside, the real value of wages when adjusted for inflation has been declining for years.
|
 To prevent the recession from spiraling into a full-blown depression, the federal government used deficit spending to stimulate the economy and push it towards recovery. Deficit spending—meaning that the government is spending more money than it collects in tax revenue—falls well within the mainstream of economic theory on how to respond to recessions. In this case, it was needed to make up for a dramatic shortfall in demand as the economy contracted by 6.4 percent in the fourth quarter of 2008 and by 5.4 percent in the first quarter of 2009. Contractions of this magnitude haven’t been seen since the Great Depression.
 The subprime mortgage market is an egregious example of the impact of social and economic inequalities in the United States. To a startling extent, it was government policy that made it possible. Federal regulations essentially sanctioned the bifurcation of the credit market into a regulated prime market for people with assets and an unregulated subprime market mainly for low-income borrowers. In the subprime market, predatory lending was able to flourish; traps in the fine print like the one Carol Mackey encountered were just part of the deal. Those consigned to the subprime market either played by these rules or lived without access to credit.
 If it were ever really true that what’s good for the environment is bad for business and vice versa, the tradeoff has swiftly become an anachronism, largely because of the pressing need to address climate change. Climate change will be a huge challenge—and a tremendous economic opportunity. It’s possible to battle climate change and create jobs at the same time.
 Economists often talk about workers in terms of their “human capital.” This refers to the skills and knowledge workers have acquired through education and experience. Without a qualified workforce able to improve on old technologies, physical capital, like bridges and the electric grid, degrades or becomes unusable. Every country in the world will meet the challenges of the 21st century by investing in their human capital. The needed innovations must come, after all, from people.
|
