Thanks to a new report by Zachary Goldfarb in The Washington Post, a debate is being revived about Obama’s decision not to attempt a direct response to the problem of too much household/mortgage debt.
There are two debates, really. One is whether he could have done anything. One is whether trying something would have actually helped the economy.
The primary economist doing the work on showing the linkages between too much mortgage debt and the bad recovery is University of Chicago Professor Amir Sufi, who has done some novel work by looking at the economic conditions across various counties to see what kind of differences there are between high-leverage counties and low-leverage counties, in terms of their economic trajectory.
One of Sufi’s most powerful charts comes from a study published last November.
The left chart shows clearly that as you go higher up in the leverage of various counties, you see a clear decline in employment growth in the “non-tradable” sector, meaning jobs that have to be performed in person, and not for export (like a teacher, or a gardner). In the right chart you see that higher leverage counties didn’t see any higher job losses in tradable sectors (like factories that make gadgets).
Pretty much all industries saw job losses in the crisis. But if you lived in a high-leverage area, and you worked in a field where your only customers/partners were local, you were particularly likely to get hit.
Photo: Amir Sufi
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