How a Poorer America Is Holding Back the Recovery

(Sept. 16) -- The nation's epidemic unemployment knocked nearly 4 million more Americans into poverty last year, swelling the ranks of the poor to the largest number in at least half a century.

And if the depth of the pain wrought by the financial crisis is already familiar, what's emerging is a new picture of how that pain has undermined the economic recovery and complicated government efforts to get the country back on track.

The Census Bureau today said the poverty rate climbed to 14.3 percent, or roughly one in seven people living in the U.S., from 13.2 percent in 2008. That's the highest poverty rate since 1994. Moreover, the official poverty threshold -- annual income of $10,956 for an individual or $21,954 for a family of four in 2009 -- is cleared by many Americans who barely eke out enough to support their families. Among other findings, the Census reported a significant increase in the tally of Americans who have no health insurance.

The number of people living below that poverty threshold climbed to 43.6 million in 2009 from 39.8 million a year earlier. This is the largest number of officially impoverished Americans in the 51 years the government has kept track of poverty levels, and the highest percentage since 1994.

"The longer people are out of work, the more likely that they will fall into poverty," notes Robert Greenstein, head of the Washington-based Center on Budget and Policy Priorities.

Economic Pain and Puzzlement

And long-term unemployment, too, is at a historic high.

The latest poverty rate numbers come at a time when policymakers are increasingly confounded by the slowing recovery and an anemic pace of job creation, which barely begins to reverse the loss of more than 8 million jobs during the 2008-09 financial crisis. The last unemployment report from the Labor Department showed that in August 6.2 million people had been unemployed for 27 weeks or more, and this figure includes only those jobless confident enough in their prospects to still be looking for a job.

The economic growth that ignited almost a year ago, and the nascent expansion of payrolls that followed, seemed to fizzle out last spring.

Since then, the nation's economic stewards at the Federal Reserve have been struggling to find ways of boosting growth when interest rates have already been kept near zero for nearly two years. And in recent months, President Barack Obama has had to hedge his talk of the economic progress made by his administration by reminding his audiences of how deep an economic "hole" he confronted on taking office.

Anger over TARP

In another report out today, the watchdog agency for the Troubled Asset Relief Program points out how much that hole has interfered with efforts to turn around the economy.

The Congressional Oversight Panel, created to keep an eye on TARP in October 2008 when Congress and the Bush administration put the program in place, said however much TARP helped bring the country back from the brink of depression, it has failed to make enough of a difference in the lives of many Americans.

The Obama administration last December decided to extend TARP through Oct. 3 of this year. Treasury Secretary Timothy Geithner at the time said that in 2010 the program would be limited to preventing mortgage foreclosures, providing funds for small and community banks and making it easier for Americans to get student and car loans and use their credit cards. A fourth goal, he said, would be to preserve the Treasury's authority to intervene in financial markets in case there's another meltdown.

But, the oversight panel said, that last task of providing an "implicit guarantee" for the financial system turned out to be most of what the program accomplished over the past 10 months. This has hurt TARP's image and with it support for any new government efforts to help the economy.

"The program is now widely perceived as bailing out Wall Street banks and domestic auto manufacturers while doing little for the 14.9 million workers who are unemployed, the 11 million homeowners who are underwater on their mortgages or the countless other families struggling to make ends meet," said the panel, which is headed by Elizabeth Warren, who has been tapped by Obama to oversee establishment of the new Consumer Financial Protection Bureau.

"Treasury acknowledges that, as a result of this perception, the TARP and its programs are now burdened by a public 'stigma,'" the panel added.

Mission Drift and the Spread of Confusion

The stigma is partly the Treasury's fault, the panel found, for failing to collect enough data to back up its claims that "the pain would have been far worse if the TARP had never existed," and partly because the government kept broadening the program's purpose. The original mission of buying troubled mortgage-backed securities from banks later came to include outright cash infusions for banks, help for the auto industry and much more -- what the military refers to as "mission drift."

"The early change in TARP strategy from asset purchases to capital injections, followed by the roll-out of numerous seemingly unconnected programs, combined with largely ineffective communication of the reasoning behind these actions, spread confusion in the public and undermined trust in the TARP," the panel said.

This confusion has come to include the Recovery and Reinvestment Act pushed through last year by the Obama administration and now popularly known as the stimulus -- a program credited by most economists with creating millions of jobs and keeping millions of Americans out of poverty. Indeed, "stimulus" has become a dirty word for Republicans and one Democrats have become extremely reluctant to use.

A survey conducted by the Pew Research Center in late April, just when consumer spending and hiring started to wane again, found many Americans had become dubious about the effectiveness of both TARP and the Recovery Act. Sixty-two percent of respondents said the economic stimulus hadn't helped the job situation, countering several nonpartisan studies that found it did.

These perceptions and their political resonance have constrained the government's ability to take any new stimulating action that many economists consider necessary to make a dent in unemployment, or poverty -- a dynamic that could become self-perpetuating.

"The problem will get much worse long before it gets better," said Isabel Sawhill, a senior fellow at the Brookings Institution, who estimates the recession will ultimately add 10 million people and 6 million children to the poverty rolls in the coming years. "The poverty rate is likely to approach 16 percent before we are out of the woods and to remain high through the rest of this decade."