Aftershock: The Next Economy and America's Future (11 page)

Much of what people want can’t be bought anyway.
In 1943, behavioral scientist Abraham Maslow wrote “A Theory of Human Motivation,” a paper in which he posited a hierarchy of human needs. At the bottom are food, shelter, sex, and sleep (of which the first two are typically purchased, although markets also exist for the latter two). Next come safety and security (which we normally purchase as well, typically through locks on the doors and taxes that pay for police officers and a system of criminal justice). If we lack any of these basics, we’re forced to spend most of our time trying to remedy what’s missing. But once these fundamental needs are met, according to Maslow, our higher needs cannot be satisfied in the market—indeed, the very act of trying to purchase them robs them of their emotional sustenance. They include “belonging needs,” such as love, acceptance, and affiliation, and “esteem needs,” by which he meant self-respect, social status, and the approval of others. At the top of Maslow’s pyramid are “self-actualization” needs—our yearning to find meaning in our lives and to express ourselves.

By some measures, then, one could argue that with less paid work and less money to spend, people could—at least theoretically—enjoy their simpler lives.
Before the Great Recession, many Americans were trying to cope with declining hourly wages by working more hours and sleeping less—by some estimates an average of one or two fewer hours each night than in the 1960s. (That deprivation created an entirely new industry.
In 2007, Americans spent a whopping $23.9 billion on sleep-related products and services—everything from white-noise machines and special sleep-inducing mattresses to drugs for insomnia. That was more than double what we spent on sleep a decade before, according to Marketdata Enterprises, a research firm in Tampa, Florida.)

In mid-2009, the
Archives of General Psychiatry
released a study showing that one in ten Americans take antidepressants within the course of a year, making antidepressants the most prescribed medication in the nation, and by extension, in history. The number of Americans on antidepressants doubled between 1997 and 2007, even as the stock market and home values soared. Antidepressants surely help millions of people cope with stressful lives, but some of the stresses of that era came from trying to earn enough to afford everything that was considered the hallmark of a successful life.

The harder we worked to buy these things, the less time and energy we had to enjoy what we bought. American culture sent an increasingly mixed message: Work like mad but enjoy life to the fullest. Doing both proved impossible. Sociologist Daniel Bell identified this cultural contradiction years ago, but it became more pronounced in the years preceding the Great Recession. The Protestant virtues of hard work and deferred gratification were at increasing odds with a market that instructed us to fulfill our dreams instantly and indulge our every want. As those wants continuously ratcheted upward—fueled by our anxieties over aging, relative status, and personal attractiveness—we worked even harder.

The argument on behalf of hard work has always been premised on something of a lie. People are led to believe that one day they will find satisfaction, if not in the work itself, when they finally have worked hard enough to afford and accumulate what they desire. But that day never seems to arrive. There is no light at the end of the acquisitive tunnel. Even Adam Smith, the putative father of market economics, recognized the centrality of this deception.
Writing in the eighteenth century (not in his
Wealth of Nations
but in his
Theory of Moral Sentiments)
, he described the typical worker who “through the whole of his life … pursues the idea of a certain artificial and elegant repose which he may never
arrive at, for which he sacrifices a real tranquillity.… It is this deception which rouses and keeps in continual motion the industry of mankind.”

A simpler life may prove to be safer as well.
Almost 10 percent fewer people were killed on America’s highways in the bust year of 2009 than in the boom year of 2007, according to the National Highway Traffic Safety Administration. Some credit safer cars, but that can’t be right, because cars weren’t that much safer in 2009 than they were in 2007. In fact, they were mostly the same cars, because sales of new cars plummeted. Some hypothesize that our roads became safer, but there is no evidence of this, either. (Actually, many of them are falling apart for lack of adequate maintenance, and major bridges are still caving in.) Some think the drop in highway fatalities was due to drivers’ being more careful—buckling their seat belts, obeying traffic laws. That would be nice if it were true, but here too the evidence is weak. Seat-belt laws had been in effect in most states for years. If anything, we were less careful, chatting on cell phones, texting, fiddling with BlackBerrys and iPhones, and adjusting global positioning devices. And more of us have been driving motorcycles and scooters, accounting for a growing number of highway deaths.

The salient reason for these statistics is much simpler. When the economy slows, fewer people take to the roads. Fewer commute to work, fewer pick up and deliver, fewer drive from one client or meeting to another. And as incomes shrink, fewer people drive to malls, movies, and restaurants because they have less money to spend. Fewer people on the highways means fewer highway accidents and deaths.

The same phenomenon can be traced to the workplace, where deaths and serious injuries dropped to their lowest rates on record in 2009, according to the Department of Labor. This wasn’t because workplaces suddenly became safer, workers more careful,
or inspectors more diligent. It was because employers trimmed back hours, particularly in risky professions like construction, where the fatality rate dropped 20 percent. The bursting housing bubble meant far fewer workers on roofs, under cranes, and behind electric saws, where they might be severely injured or killed.

Greenhouse gas emissions also dropped in 2009. That wasn’t because environmental regulations mandated it. Nor was it because people suddenly became more environmentally conscious. Emissions dropped because consumption declined in the United States and in many other places around the world, thereby reducing production and usage of everything that emitted carbon dioxide. In all likelihood, this improved the health of Americans, as well as that of others around the planet.

Given all these palpable benefits, it is not implausible that Americans will find more contentment as we consume less. But this sanguine prognosis ignores several painful adjustments we will have to make.

The first painful adjustment will be to a lower standard of living—or at least far lower than we anticipated. Behavioral research shows that losses are more painful than gains are pleasurable. Most people won’t take a bet that gives them an 85 percent chance of doubling their life savings and a 15 percent chance of losing them. In a similar vein, most of us put a higher premium on the cost of giving up something than we do on receiving an item in
the first place.
Princeton psychologist Daniel Kahneman demonstrated this by placing people into two randomly selected groups. Those in the first group were shown a particular type of mug and asked how much they’d be willing to pay for it. Those in the second were given the mug and then asked how much money they’d want in order to give it back. It turned out that people in the second group demanded twice as much to part with the mug as those in the first group were willing to pay for it.

Gains and losses aren’t symmetrical, because whatever we possess sets a minimum standard for how we judge our material well-being thereafter. When we lose something of value, we retain the memory of having once had it, and regret the loss. If we lose a convenience or a benefit that we relied on, even worse: We must also forego our dependence on it. Someone who’s enjoyed the benefit of an air conditioner and then has to do without because he can’t afford to fix it after it breaks, for example, is likely to feel much worse off than someone who could never afford air-conditioning in the first place.

Societies whose living standards drop experience higher levels of stress than do societies that never had as much to begin with—and the deeper the drop, the higher the stress. Suicide rates offer some evidence. When even a wealthy economy like the United States dips, the rate of suicides rises; the longer the downturn lasts, the higher the rate becomes.
Behavioral economist Christopher Ruhm found that for every 1 percent rise in a state’s unemployment rate, the number of suicides increases 1.3 percent. If people remain jobless for long, the suicide rate rises further.
The stock market crash of 1929 caused an increase in suicides, and the suicide rate rose as the Great Depression wore on. In 1929, there were 15.3 suicides for every hundred thousand people; by 1930, 17 per hundred thousand; by 1932, 18.6.

An extreme example of the social and psychological stresses accompanying prolonged economic loss occurred in Germany
after World War I, when most Germans became far poorer than they were before. The Treaty of Versailles required Germany to pay the Allies substantial sums in reparations for the cost of the war, making it difficult for Germany to rebuild and subjecting it to continued economic distress, including hyperinflation in the 1920s followed by widespread unemployment. By the time Adolf Hitler made his political debut, many Germans were eager to turn to anyone who seemed to offer a solution to the problems they had long endured, as well as an easy scapegoat.

Perhaps the hardest loss for middle-class Americans will be giving up the expectation that the future has to be materially better. We’re used to moving up in America, surpassing ourselves, trading up. Middle-class Americans have long assumed that hard work will ensure a better future for them and, especially, for their children.

The last time our hopes for a better life were dashed so profoundly was during the Great Depression. Robert and Helen Lynd, the sociologists I mentioned earlier who studied Muncie, Indiana, in 1924 and then wrote
Middletown
, returned in 1934 to see if anything had changed. Their report, published as
Middletown in Transition
, noted that the “staggering, traumatic effect” of “the great knife of the depression” was to end the hopes of Muncie’s citizens to own their own homes, send their kids to college, and do better than their parents did. The Depression also made them continuously fearful of sliding farther backward.
The disappointment and anxiety resembled, in the Lynds’ words, “the crisis quality of a serious illness, when life’s customary busy immediacies drop away and one lies helplessly confronting oneself, reviewing the past, and asking abrupt questions of the future.” As one housewife remarked, “The march backwards entails many things that leave a bitter taste.”

My grandfather Alexander Reich was a wealthy man before the Great Depression but lost everything in the Crash of 1929. He
moved his family out of a brownstone in New York City and into a small apartment. Although he initially believed he’d be able to regain lost ground, as the Depression wore on he gradually lost his faith. He tried other businesses but never succeeded. My memory of him from the 1950s is of a man filled with sadness and regret. For him, the American dream had been shattered.

Yet even so, my grandfather’s despair did not make him angry with the economic system or with the political or business leadership of the country. He was mostly angry with himself. So were countless others who had been caught in the sharp downdraft of the Great Depression. Will it be any different in the coming years? The economic conditions most Americans will experience may cause them disappointment and anxiety, to be sure, but will that turn them into angry reactionaries? That certainly doesn’t have to be the case.

The second painful adjustment for most people will be to a standard of living that’s even more significantly lower than that attained by America’s rich. Social psychologists have long understood that people typically measure their own well-being by comparison to how others are doing. When the incomes of people at the top soar and they live better as a result, everyone else feels a bit poorer. This psychological truth is likely to become more important. While Americans have suffered economic reversals before, and the middle class has felt deprived relative to those at the top,
the years ahead are likely to mark the first time Americans will experience both together.

America’s rich did take a hit in the Crash of 2008. According to
Forbes
magazine, the nation’s four hundred wealthiest people lost about $300 billion that year. That still left those four hundred enough to live on, though—a total of $1.27 trillion (more than the estimated cost of achieving universal health care for the entire nation for the next decade).
The median pay of CEOs at America’s five hundred largest companies dropped 15 percent that year, to $7.3 million. Pay and benefits at Wall Street’s biggest banks dropped nearly 11 percent. It was not all bad news, however. New York’s attorney general found that nearly five thousand of Wall Street’s “top performers” still received multimillion-dollar bonuses that year. And a study by
The Wall Street Journal
found that the retirement plans of a quarter of the top executives at major companies actually increased in value, even as most of their employees’ 401(k)s declined precipitously. The executives’ employment contracts guaranteed them fixed returns.

Yet by the end of 2009, most of the rich had bounced back, and the gap between them and everyone else was widening again. One major reason: Most of the assets of rich Americans are held in stocks, bonds, and other financial instruments—whose values rose in the wake of the Great Recession as companies cut costs (especially their U.S. payrolls) and expanded their global operations. By contrast, as noted earlier, the major asset of middle-class Americans has been their homes, whose prices took a beating in the downturn and, in most parts of the country, won’t return to their 2007 levels for many years. Beyond this was the inexorable trend of corporations’ cutting the jobs and pay of anyone who could be replaced by foreign workers or by software and automated machinery, while competing for the “talent” who pushed profits higher.