One effect of the Great Recession was to massively widen the gap between the amount of wealth the economy could be producing and what it actually was producing. GDP production dropped almost $1 trillion from its pre-recession trend line, and between 2008 and 2011 the United States lost around $3.6 trillion.

CBO’s “current law” baseline, which assumes the nation goes over the so-called “fiscal cliff,” does not show a return to potential GDP until 2018. However, as the Economic Policy Institute noted yesterday, CBO’s predictions over the last three years have repeatedly pushed back the date of the recovery, suggesting there’s no guarantee it actually happens:

CBO’s most recent forecast shows recovery rapidly accelerating starting in late 2013, with real GDP growth averaging 4.5 percent over 2014—2016 (more than twice trend growth since recovery began); this spurt of growth exceeding potential GDP growth would close the output gap.

Should we bank on this recovery? Probably not, even though it seems that most of the deficit reducing industrial complex in D.C. is banking on it.

As an empirical matter, the CBO projections have consistently issued premature dates for when full recovery will occur; the 2014 recovery expected back in CBO’s Jan. 2010 forecast is now projected for 2018. And so on.

Part of the problem is that economies can get into negative as well as positive feedback loops. If unemployment is high and the bargaining power of employees is low, that can weigh down wage and price growth. If those grow slowly, it takes much longer for households to pay down their debt, further delaying the recovery.

But a deeper problem is that CBO’s projections of an approaching recovery don’t just build in assumptions about how the economy will behave. It builds in assumptions about how policymakers will behave as well. It assumes that the Federal Reserve responds to a recession by opening the spigot and loosening monetary policy. It assumes that safety net spending automatically increases to meet the needs of more Americans thrown into hardship.

But those policies are choices, influenced by the culture and ideology and worldview of policymakers. They are not inevitabilities, as the Republican Party has repeatedly demonstrated with its determination to rein in the Fed and impose austerity. Zooming out to the international scene, Carmen Reinhart and Kenneth Rogoff’s finding that systemic financial collapses lead to much slower recoveries is driven to no small degree by policymakers’ tendency to react to recessions with self-destructive choices. Conversely, if countries can buck the conventional wisdom that government must “tighten its belt” when individual families are tightening theirs, real good can be achieved.

Median net worth in the United States reached its lowest point since 1969 in 2010, according to a new study by Professor Edward Wolff at New York University. Moreover, according to Wolff’s research, inequality skyrocketed as a consequence of the Great Recession, taking resources away from middle class, minority, and young families while the wealthy made significant gains.

Wolff’s study tracked changes in overall household wealth by race, class, and age from 1962 to 2012. He found that in the past 20 years, average wealth among wealthy families rose substantially whereas the middle class and poor lost out. Indeed, the average family in the bottom 40 percent of Americans had a substantially negative net worth as a consequence of indebtedness:

Over this period [1983 to 2010], the largest gains in relative terms were made by the wealthiest households. The top one percent saw their average wealth (in 2010 dollars) rise by almost seven million dollars or by 71 percent. The remaining part of the top quintile experienced increases from 52 to 101 percent and the fourth quintile by 21 percent, while the middle quintile lost 18 percent and the poorest 40 percent lost 270 percent! By 2010, the average wealth of the bottom 40 percent had fallen to -$10,600.

The most recent and most significant spike in wealth inequality over the course of the period Wolff studied, from 2007 to 2010, was in large part consequence of the collapse in home prices after the housing bubble collapsed. Middle class families often had invested substantially in their homes, taking on significant debt to do so. When home values collapsed, the debt-to-asset ratio for those families skyrocketed, while wealthy families with less debt were comparatively unaffected.

Home price collapse also explained why young, black, and Hispanic families each lost substantial wealth relative to older and whiter families. Such families tended to have more debt and much more, as a percentage of wealth, invested in houses. Hispanic families were the hardest hit — according to Wolff, “the mean net worth in 2010 dollars of Hispanics fell almost in half, and the ratio of this to the mean net worth of white households plummeted from 0.26 to 0.15.”

Wolff analyzes household wealth, rather than annual income, for six reasons, including the fact that “the availability of financial assets can provide liquidity to a family in times of economic stress, such as occasioned by unemployment, sickness, or family break-up.” However, studies of income inequality also support Wolff’s pessimistic account of growing inequality: they’ve found income inequality has risen in almost every state over the last 30 years and that the middle class has just suffered its “worst decade in modern history.” Unfortunately, many of the jobs created since the Recession don’t pay well enough to make up for the collapse.

While America’s recovery from the 2008 recession has hardly been booming — economic growth remains sluggish and unemployment is still a discouragingly high 7.8 percent — it’s actually been better than Europe’s. “The economy of the European Union will shrink by 0.2 percent this year, according to the International Monetary Fund. It is smaller than it was five years ago, while the American economy is 2.9 percent bigger,” noted New York Times reporter Eduardo Porter. Even two of Europe’s most impressive economies, Germany and Austria, are predicted to grow at half the U.S. rate over the next two years.

More strikingly, for all the stereotypes of Europe as a liberal haven, the United States actually hewed closer to the activist, Keynesian responses advocated by the American left-wing than did European policy makers:

Germany’s insistence that indebted Mediterranean countries cut government spending deepened recessions in those nations. [...]

[The United States Federal Reserve was] far more aggressive than the European Central Bank, quicker to drop interest rates to zero and pump money into the economy, buying government debt and other bonds. Fiscal stimulus — an initial $800 billion package in 2009 followed by about $600 billion in payroll tax cuts and other efforts — was bigger and more sustained than in other advanced countries. Banks in the United States were forced to raise billions in new capital, which allowed them to cope with the turbulent financial markets better than their European peers. [...]

Today, most economists say they believe that these policies provided vital support to the economy. In its most recent World Economic Outlook, published this month, the I.M.F. acknowledged that the fiscal stimulus was probably much more effective at bolstering growth than it had previously allowed.

While the sample size of developed western countries is small, comparing the different stimulus packages as a share of the economy with how much economic growth followed produces a positive correlation.

Of course, the effects of the 2008 crash were not distributed evenly across the international stage, and a few countries have bounced back faster than the United States. But those nations tend to be outliers in terms of their banking system or their reliance on exports. The Times article cites recent work by economists Carmen Reinhart and Kenneth Rogoff, which attempts to disentangle economies that suffered a systemic financial crisis from ones that merely suffered a boderline crisis. Under that apples-to-apples comparison, America’s per capita GDP has done noticeably better.

Higher economic growth does not necessarily translate directly into higher job growth, and as Porter also observes, one area where the United States has generally underperformed Europe is employment. But that’s largely because Europe has stronger unions, more regulations making it harder to fire workers, and because several European countries subsidize wages or subsidize companies to encourage them to keep workers on — hardly approaches advocated by American critics of left-wing economic policy.

Generally speaking, while the United States’ policy response to the recession was a watered-down version of what left-wing economists and advocates preferred, it came closer to meeting that model than the European response — which hewed closer to the right-wing austerity model. And since then, the U.S. recovery has noticeably outperformed Europe’s.

Household incomes have fallen faster since the end of the Great Recession than they did during it, even as corporations have returned to greater profitability than they reached before the Great Recession. Corporate profits passed their pre-recession levels earlier this year, but according to a new study from Sentier Research, household incomes have fallen behind, dropping nearly five percent from June 2009 to June 2012. During the recession, incomes dropped just 2.6 percent, as the Washington Post reports:

Incomes have dropped more since the beginning of the recovery than they did during the recession itself, when they declined 2.6 percent, according to the report, which analyzed data from the Census Bureau’s Current Population Survey. The recession, the most severe since the Great Depression, lasted from December 2007 to June 2009.

Overall, median income is 7.2 percent below its December 2007 level and 8.1 percent below where it stood in January 2000, which was at $55,470, according to the report.

Corporate profits are at record levels, reaching an all-time high of 11 percent of the nation’s gross domestic product in July. But instead of re-investing that cash into jobs that will help the economy recover, corporations are sitting on cash — the members of the Standard and Poor’s 500 held $800 billion in cash in June 2011.

And while they are loathe to spend money on new workers, many of America’s companies have had no problem enriching executives. Even as some companies layoff workers, they have spent money on share buybacks that make executives rich. Executive compensation, meanwhile, has grown 127 times faster than worker pay over the last three decades, and many companies have paid outlandish bonuses and salaries to executives even as they layoff workers.

All of that has had an effect on the American middle class, which, according to a study released today by Pew Research Center, had its “worst decade in modern history” during the first 10 years of the 21st century.

The wealth gap between the rich and poor in the United States grew significantly during and after the Great Recession, so much so that America may have a greater disparity in wealth than even Ancient Rome once had.

New data from the Census Bureau, though, shows that the recession didn’t just grow the wealth gap between rich and poor; it also had a tremendous affect on the gap between different races. The wealth gap between whites and blacks nearly doubled during the recession, and whites now have 22 times as much household wealth as blacks. The gap also widened to 15-to-1 between whites and Latinos, CNN Money reports:

The median household net worth for whites was $110,729 in 2010, versus $4,995 for blacks, according to recently released Census Bureau figures.

The difference is similarly notable when it comes to Hispanics, who had a median household net worth of $7,424. The ratio between white and Hispanic wealth expanded to 15 to 1.

The Great Recession took its toll on millions of Americans, but its effects hit minorities hardest. The housing crisis was especially brutal for minorities, many of whom were pushed into bad mortgages by the nation’s biggest banks. The loss of 600,000 public sector jobs also hit hard, since black and Latino workers are more likely to hold government jobs than their white counterparts. Those layoffs have continued since the end of the recession as state and local budgets remain crunched.

And though the nation’s unemployment rate — currently at 8.2 percent — is abnormally high, that rate would represent generational lows for black and Latino workers. Even the 9.6 percent unemployment America experienced at the peak of the crisis would be an improvement for blacks, whose unemployment rate has rarely dipped below 10 percent in the last 50 years.