...says Robert Reich; we've been spending money we don't have just to stay in place. Excerpt:
Since the year 2000, median family income has been dropping, adjusted for inflation. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.It's not as if the typical family suddenly went on a spending binge --- buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.
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My point isn't in agreement with Reich. I should have been more clear. I should have said that even if we accept his point that our buying power is dwindling, the fact remains that we are not living within our means.
He's using an age-old, class warfare argument. The implications of Reich's point is that there is a systemic issue that rips money from the poor and transfers it to the wealthy.
I'm saying these are two different points. Regardless of what you think about our "dwindling buying power", we still need to spend only what we have. This is a tough pill to swallow when you are Robert Reich and everything comes back to his tired class warfare argument.
In about 1970 my parents bought a 40 acre farm in a rural area with a broken-down house they remodeled along with several outbuildings including a large barn. They spent about 75% of my father's annual income at the time. Today, in order to purchase the same house and property it would take about three times my annual income.
My wife and I live simply, an old house, two old vehicles that are paid for, no cable, no internet, one basic cell phone for my wife's and my children's safety when traveling, just basic stuff. We live on my income, which is slightly above the median. We are paying off credit card debt we incurred over about ten years of fairly moderate stupidity, just having used the cards to make up the left-overs at the end of the month.
We are really struggling right now. It's not uncommon for us to pay as many bills as we absolutely must every time I get paid, then have twenty dollars or less to last us two weeks. My wife works a few evenings a week, but with five small children at home, constant childcare is required. If my in-laws didn't buy me a tank of gas now and then I wouldn't be able to get to work. We would consider selling our house and renting, but there are repairs that need to be done first which we can't afford to do, and we are probably upside down now due to the poor housing market. I might be able to find a second job, but my wife would probably go insane and I would never see my children. The job I have is realistically about the best I could do in this area given my skills and education.
Like Rod, I could probably go back to my parents' farm if everything fell apart, and some days I don't think it would take very much to put us over the edge. I just hope it doesn't come to that. In a few years the credit card debt will be paid off and we'll realize quite a boost in our available income, but the ability to get to that point will probably take a lot of scraping by.
Funny thing is, my parents always barely scraped by too, but somehow they made it through.
I agree with your assessment. In the spirit of free giving, I would like to turn you onto a website I believe is needed in this day and time, especially the latter part of it, Cake and a Prayer.
I tried it, both the cake and the prayer, they were delicious, and the prayer was exceptional. Though the website www.cakeandaprayer.com does not have an electronic version of its product, if they did I'd send you their message card which reads: "...for God to continue to use you to touch, move and inspire all those you come in contact with, just as you have inspired me."
Be blessed.
There's more to the story than either party is giving. Family incomes HAVE risen since 1967, and have dropped since the late 90's. So both are correct. And debt rose whether the income was falling or rising.
The major story on family incomes since 1967 has been the higher participation of wives in the workforce. Seen from this standpoint, The $11,000 rise in family income seems trivial, since it means a lot more work is given to get that rise. Further, entering the workforce imposes costs of its own, on wardrobe, transportation, child rearing, meal preparation, etc. Thus, that $11,000 seems even less than it really is.
Nevertheless, the family with two workers had more borrowing power and took more credit, and did so in good times and bad. At this juncture, they are often borrowing just to stay afloat, so Riech is right, sort of.
For people claiming that people should 'cut back' non-essentials and things would be fine...um, no.
The spending on essentials vs. the sensing on luxuries has already changed, and assuming that people who can't make a $750 mortgage payment are going out and buying a $800 TV is, well, rather stupid. There are people in trouble that are buying $800 TV, but they're in trouble because they can't make their $5000 mortgage payment. Spending is relative, and people cut back long ago. Just because they have a big screen TV now doesn't mean they bought it now...if anything, it means they're slightly better planners than people who blew all their extra cash on eating out and movie tickets.
And, more to the point, a lot of people took on obligations when times were good that they can't afford when they turn bad. Yes, they shouldn't have, they should have saved it, but hindsight is 20/20, and people were being told their house would only continue to increase in value by liars in the government.
If someone has been told, by the government and all the news media and whatnot that they won $1000 monthly from the magical house ownership fairy, it's really hard to fault them for economic planning that includes that. Sure, I was screaming that this was rather stupid, that house prices don't and can't work like that, that in the entire history of mankind a 'standard' house has been at roughly two-three year's wages, and that the price of some random, non-rare good can't just keep rising in a free market for no obvious reason, but no one listens to me.
And people were only able to take on those obligations because we decided to extend absurd amounts of credit to everyone who had a pulse, or at least whose body was still slightly warm, or possible because banks started to believe(1) the Always Rising Property Value Lie(TM). Whereas in the past people were not able to do that.
In fact, a lot of us have the suspicion this absurdly-easy-to-get credit based on the Always Rising Property Value Lie existed solely because the government wanted the economy to look good, and wanted people not to realize they were slowly sinking underwater.
1) I used to assume they weren't that stupid, but I think we can currently conclude they're way past that level of stupid. That banks, in fact, need an assessment by a qualified teacher to see if they might need additional help, or even placement into a special ed class.
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