The Great Recession, Five Years Later

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This December is the fifth anniversary of the start of the Great Recession, which officially ran from December 2007 to June 2009. Weekend Edition Saturday host Scott Simon marks the occasion with financial journalist Michael Lewis to discuss how bad it looks in perspective, and if we understand what caused it.


This month marks a dismal economic anniversary. According to the National Bureau of Economic Records, December 2007 is the moment that the U.S. economy peaked, but unemployment climbed to 4.9 percent, and the recession began. Of course, unemployment eventually hit 10 percent. Michael Lewis has covered the economic crisis in almost every way. He's the author of "The Big Short," which traced the road to the stock market meltdown, and most recently "Boomerang," which looks at the European financial crisis. Michael Lewis joins us from the studios of the University of California, Berkeley. Thanks very much for being with us, Michael.

MICHAEL LEWIS: Thanks for having me.

SIMON: Unemployment numbers that were released Friday show the unemployment rate fell to 7.7 percent - that's the lowest in four years. At the same time, it's pretty discouraging. Is there a new normal in unemployment figures that's settling in in the economy?

LEWIS: Well, these things are inherently difficult and impossible to predict. But I would say this: I mean, it's very interesting, this whole economic period we're living through. It's obviously the equivalent of the Great Depression. You know, we're living through a historical period that rhymes with the Great Depression. History is not repeating itself, but it is rhyming. And the difference is that the Federal Reserve has a greater expertise now in dealing with these massive contractions in demand that occur after a financial crisis than they did in the 1920s and 1930s. They responded exactly the wrong way back then with a contractionary policy. The Federal Reserve has essentially gone and numbed a lot of the pain that normally would follow from the sort of financial crisis we've just gone through. So, 7.7 percent unemployment rate is actually - it's probably amazingly good, given everything else that's moving in the world.

SIMON: How much of the current economic predicament reflects a fundamental technological change in what work is, and how value is created?

LEWIS: You know, that's a really interesting question. It's a huge question. And, I mean, the short answer is I have no idea. I mean, how you parse the weakness in the economy and decide how much of it is - 'cause it's some sort of fundamental shift in the nature of work and how much of it is caused by these financial machinations and the clean-up that has to happen after it. I mean, the reason that Americans were using their homes as ATMs was their productive work life were not generating the returns to meet their material expectations. So, there is obviously a more fundamental problem than in just the financial machinations.

SIMON: 'Cause there are a lot of industries now that can point to the fact that they are using fewer people to sometimes produce even greater revenues.

LEWIS: Well, that's what using fewer people will sometimes do. It certainly will - using fewer people will increase the productivity of the people that you are using. And we had been living through an age where we are adapting to a transformative technology - the Internet. I mean, this has enormous effects on the workplace. But, you know, I'm a mere writer. I wouldn't even know how to begin to answer the question you just asked; how much of this is a fundamental shift in the economy and how much of it is a result of the way we've led our financial lives?

SIMON: Michael Lewis, what should, in your mind, Americans learn from the financial crisis in Europe?

LEWIS: The thing that has interested me the most is the role of the big financial institutions in our economy. I think over the period of the last several decades, they have spun out of control; that they are too big to fail, which means that the normal sort of mechanism of a market economy is not allowed to work in a financial sector. That normal mechanism is creative destruction. It's, you know, someone builds a better one and the old one dies. And I would have thought the big lesson from the period of 2007, 2008 is that we can't really build an economy based on such institutions. It's like building your house on sand.

So, I think the one lesson is you need a much more stable financial sector to have a healthy economy. And the other lesson is if a financial sector gets too big, it becomes extremely difficult to reform.

SIMON: Can children no longer hope to be more prosperous than their parents in America?

LEWIS: Some children obviously can be. But there's an implication to your question. I think that's very possible that the assumptions that we've lived with for a very long time, that each generation is going to be more prosperous than the last, may not be true or as true. And then, the question is what are the consequences of that. I mean, we are - right - the richest, the most prosperous society that has ever inhabited the earth. At some point, the question that we may want to ask ourselves is how rich do we need to be? You know, maybe simple material improvement isn't the Holy Grail anymore. Maybe we'll become better figuring out what makes us happy.

SIMON: Michael Lewis, the author of "The Big Short" and "Boomerang." Thanks very much for being with us.

LEWIS: Thanks for having me.

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