Even more than most inherently upbeat Americans, Marylanders are reluctant to face the consequences of the collapse in the stock market bubble and a return to a far more challenging reality. Irrational exuberance was grand while it lasted. It created fantasies of easy riches, emphasized spending money over earning it, and seemed to assure that any unpleasantness would quickly work itself out.
But because of these illusions and careless practices they fostered, the current prosperity cannot be taken for granted.
Of course, economic recessions come and go. Last year's recession went almost unnoticed in Maryland with strong income growth and, until recent months, year-over-year job growth. The economy has slowed, and job loss has accelerated in recent months. But inflation has remained low and the state's unemployment, which was less than 4 percent early last year, has only briefly flirted with 5 percent, far better than in earlier recessions.
Only a few people are alarmed at current prospects; everyone should be.
The state and the nation are in the midst of only the second "jobless recovery," much like that of 1991-1992, or the double-dip recessions of 1980-1982. At issue now is the strength and sustainability of the current recovery.
The expansions that followed each of our last two recessions were powered by the accumulation of unimaginable piles of debt as we spent far more than we earned. This was well known in the 1980s, symbolized by the soaring federal budget deficits. Although it got little media attention, the explosion of debt continued in the 1990s; it was simply "privatized" as household debt soared to previously unimagined levels.
The explosion of household debt got little attention in the 1990s because the stock market bubble greatly inflated the paper value of household assets. Cheerleading analysts and the bipartisan leadership in Washington insisted that the fact that debt was skyrocketing as a share of household income was irrelevant because debt was declining slightly as a share of paper assets.
Now that the stock market has come back down to earth (although valuations are still high by historical standards), household debt is again at record levels by all measures. When adjusted to include the shift to vehicle lease payments - not reflected in "debt" figures - households are paying far more than ever before just to service their debt; this despite the lowest mortgage rates in 40 years.
