1. Wages tend to be sticky both on the way up and on the way down. We’ve had a longer than average down cycle, so it will take a longer and stronger than average recovery for people to recover to their previous level. At best, our recovery will be “L-shaped”, or in other words, a drop to some lower level and then a flatline from there. There are enough people out of work that there is nothing to put pressure on employers to raise what they pay people, and they may think that there is still money to be squeezed from prospective employees through lower pay rates , reduction in staffing and elimination of benefits.
2. Price inflation is being hidden by reduction in package sizes. A sixteen-ounce package of food used to cost the same as a twelve-ounce package of the same item does now. Goods are made more cheaply rather than have their price raised to maintain quality.
3. Rents are no longer cheap compared to buying in many markets, but people who otherwise might buy a house will put it off due to economic uncertainty and increased difficulty in getting a mortgage with less than a 20% down payment. They might have figured out that they are better off to use the money that might have gone to closing costs to pay off debts and that they may need to move in a few years to take the next job, or even just to reserve it as an emergency fund. Landlords can screen tenants based on credit records, charging them a few times what it actually costs for the credit report as an application fee ($5 fee for a credit report versust $25-50 application fee) , and most people who have bad credit aren’t able to pay the larger security deposit that would reduce the landlord’s risk.
4. Personal debt of all kinds, which reduces one’s mobility, but student loans in particular because the need to pay them to avoid penalty fees forces people to delay the purchases that would normally be made in early adulthood, such as a car , furniture, or certain durable goods, and later on, a house. This flows through the economy, reducing demand in other sectors. Bankruptcy reform failed, in the sense that the economy got bad for long enough that many people who didn’t qualify for Chapter 7 bankruptcy (discharge of debt in return for surrendering most property outside of retirement plans) eventually did because their incomve fell to the median in their county or lower, which is the income level required to avoid the “wage-earner” bankruptcy that requires you to pay a good chunk of your debt. If one has been out of work for a period of years, it might be worthwhile to try to get student loans discharged under Chapter 7. This would take shopping for a court that is receptive to this idea and require that you disclose any medical problems that make ift difficult for you to work at other than white collar jobs. What you’d have to prove is that you have no prospect of getting a job for the foreseeable future. As Elizabeth Warren noted, we are the only country where you have to save up to go broke. This is why bankruptcies peak in the February-April time frame. People have their tax refunds, so they can file for bankruptcy.
5. Innumeracy. We don’t do math well, but we “have to have it now”. Whern you can’t wait, you will have to pay at least full price, if not a premium price. It’s true that a mutual fund company collects their fee whether or not you make money, but there often is a performance element that reduces the fee collected in down years. You still lose, but not quite so much. The “rule of 72” is useful. Divide the rate of return that you get into 72 to calculate how long it will take for your money to double. If you’re making an average of 6% in a mutual fund and paying 2% in fees fora net of 4%, it will take 18 years for your money to double compared to 12 years if you didn’t pay the fees.
6. Financial fragility. Somewhere around half of all households cannot raise $1000 within a month to pay an unexpected bill. This means that if they had to move, they also wouldn’t be able to pay security and utilty deposits at the new place without getting back their old deposits, which usually takes at least a month. If you are lucky, you have family who will take you in for a while.