Dan Hind has written an excellent short treasise on the true origins of the recession,
available in PDF format from Verso Books under a Creative Commons license. After demolishing common explenations of the crisis he argues that the foundations for this recession were laid down in the seventies in the breakdown of the post-war pact between workers and capital (he doesn’t quite put it in those terms of course) and the subsequent falling of real wages:
After a long period of expansion between 1945 and 1979, in which real wages grew steadily throughout the developed world, workers’ compensation levelled off. Average earnings per hour in private non-agricultural industries in the United States reached $8.99 in 1972 (calculated in 1982 dollars). By 2007 they had risen to $8.30. Sorry, no, they had fallen to $8.30 (again, calculated in 1982 dollars). More widely, in the rich, industrialised world, the percentage of GDP captured by all workers in the form of wages fell from 75% in the mid-seventies to 66% in the middle years of this decade.
This trend took several decades to become dangerous to the new economic consensus, as workers leveraged their labour by working longer and getting more members of their households into work. (In other words, feminism saved the world):
As the economist Richard Wolff explains, workers also worked more. The single income household, which had been more or less the norm after 1945, became increasingly unusual. Where one (usually male) wager earner had been able to provide for a family of four and to increase consumption year on year, now a more affluent style of life would only be affordable with two incomes coming in. So women went back into the workforce in growing numbers and children entered the workforce earlier.
The working week also grew longer ‐ more hours being needed to achieve any increase in real buying power. In some cases one or both adults in a household took a second job, extending
hours spent working even longer. Each of these moves helped offset the reckoning. As industry and the economy expanded, longer hours enabled workers to consume more. Indeed longer hours encouraged them to consume more, even forced them to do so. Women and children who went out to work needed cars and clothes, parents needed child‐ minders.
but with wages continuing to fall, or at best to stagnate, the next step was to borrow, using
what little real wealth the wroking classes had built up over the decades –their own homes:
Those who had secured a higher share of output in the form of profits and executive pay would lend the money they couldn’t spend themselves to the workers who wanted to enjoy higher living standards. In other words the people in the system who liked to call themselves winners would lend the people they liked to call losers the money that they could no longer command as wages. From 1970 onwards levels of debt began to rise in the United States, quite slowly at first. In
1985 total household debt in the US reached 70% of disposable income. After 2000 debt grew at more than 5% per year and had reached nearly 122% of disposable income by 2006.
This was of course unsustainable and once it started to go wrong, it all went fast. the reason I highlight all this is of course because Dan Hind comfirms my own theories about the crisis. I’ve made exactly the same points he has made here about the impact of declining real wages, multiple income households and credit secured by home ownership.