Introduction: jobs are not enough.

• Author: Glastris, Paul
• Position: Cover story

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More than any election in living memory, the 2012 race is shaping up to be about one thing: jobs. Pundits are convinced that the rate of job growth between now and November is the magic number that will determine the outcome. The main policies the candidates are debating--whether to cut taxes or raise them on the rich; whether to shrink government or increase investments in infrastructure or research--are all pitched as ways to "grow" jobs. The presumption is that if we can get the economy to create jobs like it used to, America will be back on the right track.

But it's worth remembering that before the crash we had nearly full employment, and yet it had already become clear that the American Dream was fading for most Americans. Indeed, the middle class was drifting into insolvency. Through a combination of stagnant wages, indebtedness to often predatory lenders, and the rising cost of middle-class staples such as health care and energy, the average family's personal balance sheet--assets minus liabilities--was turning red. Household debt soared from 77 percent of disposable income in 1990 to 127 percent in 2007. During the same interval, the personal savings rate dropped from 7 percent of disposable income to near zero.

By 2007, the average consumer was so tapped out that even many people with jobs were no longer able to make their mortgage payments. That was the spark that set off the financial crisis. The ensuing recession further ravaged family balance sheets. The Federal Reserve made front-page news in June when it reported that median family net wealth had decreased by nearly 40 percent from 2007 to 2010, with younger families being particularly hard hit.

With household asset levels so depleted, it's folly to think that the economy can be set right merely by adding more jobs, however much they're needed. That's the lesson of the Great Depression and World War II. As James K. Galbraith has pointed out in these pages ("No Return to Normal," March/April 2009), the New Deal built infrastructure and put Americans back to work, but failed to spark self-sustaining economic growth. It was "the war, and only the war that restored (or, more accurately, created for the first time) the financial wealth of the American middle class." Not only did the war boost production to levels never before seen, just as importantly it increased household sayings. Faced with rationing and price controls, and inspired by patriotic zeal...