Large, anxious voters

Robert Reich, former U.S. Secretary of Labor, writes in the Financial Times:

The problem [with the American economy] lies deeper than the current slowdown and transcends the business cycle.

The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is ending and Americans are beginning to feel the consequences.

The first coping mechanism was moving more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970 – from 38 per cent to close to 70 per cent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. These families are known as Dins: double income, no sex.

But we reached the limit to how many mothers could maintain paying jobs. What to do? We turned to a second coping mechanism. When families could not paddle any harder, they started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared with any other advanced nation we are veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

But there is also a limit to how long we can work. As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time. With housing prices rising briskly through the 1990s and even faster between 2002 and 2006, we turned our homes into piggy banks through home equity loans. Americans got nearly $250bn worth of home equity every quarter in second mortgages and refinancings. That is nearly 10 per cent of disposable income. With credit cards raining down like manna, we bought plasma tele­vision sets, new appliances, vacations.

With dollars artificially high because foreigners continued to hold them even as the nation sank deeper into debt, we summoned inexpensive goods and services from the rest of the world.

But this final coping mechanism can no longer keep us going, either. The era of easy money is over. With the bursting of the housing bubble, home equity is drying up. As Moody’s reported recently, defaults on home equity loans have surged to the highest level this decade. Car and credit card debt is next. Personal bankruptcies rose 48 per cent in first half of 2007, probably even more in the second half, which means a wave of defaults on consumer loans. Meanwhile, as foreigners begin shifting out of dollars, we will no longer have access to cheap foreign goods and services.

In short, the anxiety gripping the middle class is not simply a product of the current economic slowdown...

Most Americans are still not prospering in the high-technology, global economy that emerged three decades ago. Almost all the benefits of economic growth since then have gone to a small number of people at the very top.

The candidate who acknowledges this and comes up with ways not just to stimulate the economy but also to boost wages – through, say, a more progressive tax, stronger unions and, over the longer term, better schools for children from lower-income families and better access to higher education – will have a good chance of winning over America’s large, and increasingly anxious, voters.

Hear hear.

(Not sure what "large, and increasingly anxious, voters" are, though. Is that a typo, or a comment on America's obesity problem?)

But it's also worth noting that American households are not without blame for getting themselves into this mess. American middle-class families have huge houses, massive gas-guzzling SUVs, and TVs in every room. Many people could have lived in a slightly smaller house, driven fuel-efficient compact cars, and told their children to go read a book. No one forced us to work those extra hours to buy those SUVs. No one forced us to max out the credit cards to buy those plasma TVs. The anxious voters could have lived a little less large.

Our economic and political system is at fault for us earning too little, but we're at fault for spending too much. If we make a new deal with our government, it should be this: we get more security and more public investment, but we save more money.