On the Way Down: The Erosion of America's Middle Class

By Thomas Schulz

Part 2: Where Did All the Money Go?

Photo Gallery: The End of the American Dream? Photos
AFP

The boom in stocks and real estate, the country's wild borrowing spree and its excessive consumer spending have long masked the fact that the overwhelming majority of Americans derived almost no benefit from 30 years of economic growth. In 1978, the average per capita income for men in the United States was $45,879 (about €35,570). The same figure for 2007, adjusted for inflation, was $45,113 (€35,051).

Where did all the money go? All the enormous market gains and corporate earnings, the profits from the boom in the financial markets and the 110-percent increase in the gross national product in the last 30 years? It went to those who had always had more than enough already.

While 90 percent of Americans have seen only modest gains in their incomes since 1973, incomes have almost tripled for people at the upper end of the scale. In 1979, one third of the profits the country produced went to the richest 1 percent of American society. Today it's almost 60 percent. In 1950, the average corporate CEO earned 30 times as much as an ordinary worker. Today it's 300 times as much. And today 1 percent of Americans own 37 percent of the total national wealth.

Income inequality in the United States is greater today than it has been since the 1920s, except that hardly anyone has minded until now.

Little Chance of the American Dream

In America, the free market is king, and people with low incomes are seen as having only themselves to blame. Those who make a lot of money are applauded -- and emulated. The only problem is that Americans have long overlooked the fact that the American Dream was becoming a reality for fewer and fewer people.

Statistically, less affluent Americans stand a 4-percent chance of becoming part of the upper middle class -- a number that is lower than in almost every other industrialized nation.

So far, politicians have failed to come up with solutions for the growing social crisis. Washington is still waiting for jobs that aren't coming. President Barack Obama and his administration seem to be pinning their hopes on the notion that Americans will eventually pull themselves up by their bootstraps -- preferably by doing the same thing they've always done: spending money. Domestic consumer spending is responsible for two-thirds of American economic output.

But even though Federal Reserve Chairman Ben Bernanke continues to pump money into the market, and even though the government deficit has now reached the dizzying level of $1.4 trillion, such efforts have remained unsuccessful.

"The lights are going out all over America," Nobel economics laureate Paul Krugman wrote last week, and described communities that couldn't even afford to maintain their streets anymore.

The problem is that many Americans can no longer spend money on consumer products, because they have no savings. In some cases, their houses have lost half of their value. They no longer qualify for low-interest loans. They are making less money than before or they're unemployed. This in turn reduces or eliminates their ability to pay taxes.

Turning Out the Lights

As a result, many state and local governments are faced with enormous budget deficits. In Hawaii, for example, schools are closed on some Fridays to save the state money. A county in Georgia has eliminated all public bus services. Colorado Springs, a city of 380,000 people, has shut off a third of its streetlights to save electricity.

There are many discrepancies in America in the wake of the financial crisis. On the one hand, the Fed is constantly printing fresh money, and the government spent $182 billion to bail out a single company, the insurance giant AIG. On the other hand, the lights are in fact going out in some areas, because Washington, citing the need to reduce spending, is unwilling to provide local governments with financial assistance. "America is now on the unlit, unpaved road to nowhere," economist Krugman warns.

Chanelle Sabedra is already on that road. She and her husband have been sleeping in their car for almost three weeks now. "We never saw this coming, never ever," says Sabedra. She starts to cry. "I'm an adult, I can take care of myself one way or another, and same with my husband, but (my kids are) too little to go through these things." She has three children; they are nine, five and three years old.

"We had a house further south, in San Bernardino," says Sabedra. Her husband lost his job building prefab houses in July 2009. The utility company turned off the gas. "We were boiling water on the barbeque to bathe our kids," she says. No longer able to pay the rent, the Sabedras were evicted from their house in August.

Friends and relatives had few resources to help them. Now they live in a room at the Salvation Army homeless shelter in downtown Ventura, which is run by Captain Finley.

The sudden plunge into homelessness is a reality that's difficult to understand, given the images of America we are accustomed to seeing in television series and films. They always depict homes with well-kept yards and two-car garages with basketball hoops attached to them. This America still exists, but it's shrinking. And often those who are managing to keep the illusion alive can hardly afford to do so.

Americans have been struggling with a rising cost of living for the past 20 years. At the beginning of the decade, families were already paying twice as much for health insurance and their mortgages than the previous generation did.

"To cope, millions of families put a second parent into the workforce," says Harvard Professor Elizabeth Warren, who President Obama appointed to chair the congressional panel to oversee the government's bank bailout program. According to Warren, the average family has spent all of its income and used up its savings "just to stay afloat a little while longer."

Spiraling Debt

Because they lacked savings, Americans began borrowing money to cover all of their other expenses, including education, healthcare and consumption. American consumer debt now totals about $13.5 trillion.

Many people threaten to suffocate under the burden of their debt. Some 61 percent of Americans have no financial reserves and are living from paycheck to paycheck. As little as a single hospital bill can spell potential financial ruin.

Chanelle Sabedra's husband has found another job, this time as a warehouse worker for a company that makes aircraft turbines. But he doesn't earn enough to get the family out of the homeless shelter. "I haven't got a new job yet," says Sabedra. Her husband's job doesn't pay enough, and the couple has now joined the growing ranks of the working poor, for whom even two low-wage jobs are insufficient to feed their families. "We need the second income," says Sabedra. "Just the baby alone is $600 a month for half-day care."

In pre-recession America, she and her husband would have had two jobs each to make ends meet. They would have worked at the cash register at Wal-Mart during the day, flipped burgers at McDonald's in the early evening and perhaps spent half the night working as a security guard or cleaning buildings. These are all low-paying jobs, hardly careers, but the combined income is usually enough to keep a family afloat. In pre-recession America, life wasn't luxurious for Chanelle Sabedra, but it was doable if they were willing to work hard enough and sacrifice enough of their lives to stay afloat.

What kind of a job is she looking for now? "Anything right now. Mostly I'm looking for retail, or just anything to get me started, but there's just nothing out there," says Sabedra.

Translated from the German by Christopher Sultan

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1. Key word in article: Billions
lakechamplainer 08/19/2010
The key word in the article is "billions". The billions the banks are earning even though they are not making making loans available to individuals and small businesses, and the billions that Gates and others can give away, because they own businesses that essentially have monopoly power. How can people have confidence in the future, especially in the financial system, when there has still not been even a minimal explanation of how the untold billions of "Rescue Package" money was spent?
2. Scheming Peasants like Blankfein
esperonto 08/19/2010
Since the US middle class is a fiction anyway, it only makes sense that it dissolves. You cant have this kind of pseudo-objectivity running 100% of the time. The American Way of Life is itself merely an elaboration on tho scheming peasant mindset of the old world. Its like the took the scheming peasant of Europe, and said okay here do whatever you want. Naturally the middle class, which thinks it is playing by the rules and deserves stability, will fall apart, because the stability they imagined was merely a fabrication invented by the scheming peasants who became the ruling class. And the education that the middle class received was tampered with. Figures were erased and penciled in to America's military favor. No one was taught Astronomy or anything classical important, just how to be drones. Then peasants like Blankfein at Goldman Sachs, who got rich from scheming, will turn around and say "we are just living a certain aspect of American life". Exactly: the "Crook" aspect, the "Swindler" aspect, the "Snakeoil Salesman", the "Scheming Peasant" aspect of America. They let them sleep in their cars, because the government is dependent on people's oil consumption. They are homeless but still oil consumers in their cars. They serve a purpose to keep the government afloat with its oil schemes.
3.
scipioafricanus 08/20/2010
This is a natural, to-be-expected result of democracy and other societal systems based on coercion. When one or a few people control the lives and property of all others. As Thomas Paine said, "they are usually the most unfit of all". (Don't think I remember the statement exactly, but that is the idea). And they effectively destroy the economy, as any incompetent would do if they try to run a business. Within the problem of democracy, there is the fact that all individuals are compensation improperly for production. "Production compensation, which includes compensation in the service industry, "must be based solely on the market value of error-free production." When there are products for which there is a market demand, or products can be imagined and created that have market value, there should be no unemployment. And companies, when managed properly, can not lose money and go out of business.
4. Production and Charm
esperonto 08/23/2010
---Quote (Originally by scipioafricanus)--- This is a natural, to-be-expected result of democracy and other societal systems based on coercion. When one or a few people control the lives and property of all others. As Thomas Paine said, "they are usually the most unfit of all". (Don't think I remember the statement exactly, but that is the idea). And they effectively destroy the economy, as any incompetent would do if they try to run a business. Within the problem of democracy, there is the fact that all individuals are compensation improperly for production. "Production compensation, which includes compensation in the service industry, "must be based solely on the market value of error-free production." When there are products for which there is a market demand, or products can be imagined and created that have market value, there should be no unemployment. And companies, when managed properly, can not lose money and go out of business. ---End Quote--- Production is part of the problem. Also as you point out the few people are not fit to lead. The few have something like Charm, the charm of the wealthy, how someone who has made a lot of money develops an untouchable grace, unless on of them as an individual has made too many mistakes, thus becoming a scapegoat for the others, like Bernard Madoff. As far as production, in capitalism of course there is the production of unneeded items, simply to have a salable commodity. I consider a lot of Apple inventions, like the next weird touch screen device, to be not only unneeded but a damaging scam to one's mind and reality. In communism, one has only production for the people's needs, and the means of production is owned by the workers, not the few. I was looking at some video that showed a boy in Afghanistan who showed his only possession was a small ball he found in the gutter. That will make one think about how much stuff one really needs to own to survive. Like if there are some things you feel you cant part with. I pride myself on not owning too much. I feel I have beaten the system by staying materialistic into adulthood. Like I don't own a television or a car. Normal middle class people who bought a bunch of stuff are now sleeping in their cars! My way of living is actually much more stable than theirs it seems. Anyone who even did a surprise inspection of my apartment for conspicuous consumption would find almost nothing of value and barren white walls with nothing hanging on them. You wouldn't even find a cell phone.
5. Long-term unemployment
acala 08/23/2010
Interesting graphic on long-term unemployment. If you'd like to dig deeper into the data try this interactive graphic on long-term unemployment and recessions from 1970 to 2010: http://www.stateoftheusa.org/content/record-long-term-unemployment.php
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