Scott Cohen spent 28 profitable years in the mortgage business, eventually starting his own company just as the Southern California housing bubble was beginning to inflate in 2001.
By 2007, the small company employed 15 people and provided enough income for Cohen, his wife, Merced, and their two kids to enjoy an affluent life in a tony Los Angeles suburb. But when the housing bubble burst, Cohen sold his business at a fire-sale price and watched in panic as the only industry he had ever worked in collapsed. His wife worked at the company, too, and her job disappeared. As the family income plummeted, the Cohens traded in their two cars for cheaper ones, cut all the expenses they could and ran up their credit cards. Finally, they had no choice but to sell their home for a loss.
For the first time in 19 years, the former real-estate executive became a renter. Many of Cohen's former colleagues took jobs at banks or retail outlets, went into teaching or just dropped out of sight.
Cohen spent a few months researching new fields and decided to start a financial-services company focusing on seniors needing help paying for assisted living. For 18 months, he built contacts at hospitals and nursing homes, took courses, studied state regulations and prospected for clients. Income was scarce. Clients often got cold feet after weeks of meetings. During one low moment, the 50-year-old businessman started looking for a conventional sales job -- hitting nothing but dead ends.
Finally, his new company, Senior Advisory Services, began to build a roster of clients and produce enough income to stabilize the family's finances. "For a while, my optimism was challenged," Cohen says. "But I think it was good for us. It shook us up and helped us go in a different direction."
Many Americans feel they're going in a different direction these days -- but too often, it's reversed. As the Great Recession of 2007-09 finally winds down, millions of Americans face diminished lifestyles, with no obvious way to regain the wealth and prospects they enjoyed just a few years ago. It's natural to hope for a return to the familiar trappings of middle-class life: plentiful jobs, regular raises, predictable careers and a steady improvement in living standards.
Some may still find that. But a large number of Americans face lasting dislocations, even as the economy recovers.
Many of the nearly 8 million jobs lost during the recession may be gone for good, with high unemployment likely to persist for several years. Consumer spending may decline permanently, depressing huge economic sectors like housing and retail. Scarce credit and other problems, meanwhile, are stunting the growth of new businesses and inhibiting the "creative" part of "creative destruction."
"This is not just a recession," says futurist Edie Weiner, the president of consulting firm Weiner, Edrich, Brown. "This is a transformation."
Out with the old rules
If so, Americans may need to reconsider the unwritten rules that have governed upward mobility since the end of World War II. From 1945 to 2000, the American middle class was a kind of perpetual prosperity machine that created vast amounts of wealth -- which mostly stayed in the United States. There were disruptions, like the recessions of the mid-1970s and early 1980s, but the wealth compounded and progress always resumed its upward trajectory.Various assumptions formed the pillars of this phenomenal era: A good education leads to a decent job and a satisfying lifestyle. Working hard means your income will keep going up. Devotion to your career will produce a comfortable retirement. And each generation will be better off than the one that came before.
The answer may be that "all the right things" no longer are. As the economy recovers and jobs slowly return, some of the pain will surely diminish. But disturbing trends that were already under way before the recession are likely to continue, and they could intensify.
For about the past decade, for instance, median household income has been stagnant after four decades of nearly uninterrupted growth. Once data from the recession are tallied, they will probably show that incomes fell between 2007 and 2009, perhaps sharply. Pay usually rebounds after a recession as the job market improves, but that pattern may not hold this time around.
Many companies can now substitute technology or cheaper overseas labor for U.S. workers, one reason economists expect a "jobless recovery" to persist. A slack job market, combined with sharp cutbacks in credit, means consumers will have less money to spend, depressing growth and hiring even further. The housing bust, meanwhile, has shrunk the biggest source of wealth for many Americans, limiting their financial freedom and their ability to move where the jobs are.
But there is consolation. Other nations face the same problems, and compared with most of them, the United States still has a dynamic economy, with great universities, a strong entrepreneurial backbone and a financial system that works smoothly -- when it's healthy. Forced cutbacks over the past few years may even produce a lean, mean economic machine that comes roaring back stronger than expected.
But counting on that would be foolish, and the Americans with the best shot at getting ahead will approach their future the way Scott Cohen did: They'll find new ways to exploit the skills they have, gain an advantage by reacting before others, develop new skills continually and rebound from setbacks without becoming paralyzed.
Continued: In with the new rules
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