The Great Crash

Robert Reich, the former Secretary of Labor, sees the recent American economic downturn as a long-delayed symptom of underlying economic disease afflicting this country.

Reich brilliantly explains how the upcoming tax “rebates” will do nothing to slow America’s spiraling descent into, possibly, Argentine-style economic chaos. The problem, as Reich sees it, is that we Americans have finally run out of ways to spend more than we earn.

The first problem is the decline in real wages—that is, wages adjusted for inflation. Wages have been flat over the last 35 years; although actual dollar amounts have increased, because of inflation the purchasing power of these dollars is the same as if was 35 years ago.

Compounded on this problem is the fact that average wages are falling; the "middle mark" is sliding toward the poverty end of the income scale. Thirty years ago, the median male worker in his 30’s earned 12% more than he does today. This is largely the result of the migration of high-paying manufacturing jobs, and their replacement by no-skill, no-benefit retail work.

To maintain “middle class” lifestyles amid this decay, American families have increasingly relied on women to work outside the home. This trend began in earnest in the 1970s, and resulted in a terrible personal time deficit for many women. Arlene Hochschild has written eloquently about the deleterious effects of this in her book “The Second Shift.”

Having both parents work soon became not enough in the face of declining wages, Reich writes. The next stage involved increasing working hours, both within one job and by the addition of other jobs. Americans now work 350 more hours/year than Europeans.

This trend, too, had a limit; one cannot work more hours than there are in the day. So how to maintain lifestyles in the face of declining wages? In the 1990s a trend began for large numbers of workers to take out home equity loans, using their still-mortgaged houses as collateral. This is a like taking out a new credit card to pay minimum payments on another maxed credit card. And now, of course, with the collapse of the housing market, this last aspect has hit Americans like a freight train.

Even those of us who rent are being affected; increasing numbers of apartment dwellers across the country are arriving home to find 72-hour eviction notices because their landlord cannot make minimum mortgage payments. One thing woefully lacking from proposed congressional legislation protecting home owners from foreclosure is some manner of protection to renters—who have paid on-time and in good faith, and yet through no fault of their own find themselves homeless at a few day’s notice.

This crisis is long in coming.

Since the 1960s, manufacturing in America has been in precipitous decline. There have been several plateaus—the 1990s Internet Boom, the 2000s housing boom—but the long-term trend is dismal. We are going broke.

To understanding just how bankrupt America actually is, consider our $9 trillion national debt. With a population of 300 million Americans, this $9 trillion debt saddles every man, woman, and child in America with a $30,000 payment. However, this number does not consider that we pay interest on this $9 trillion debt; this interest effectively doubles the national debt burden.

Congress can pass a balanced budget, and this would reap lower interest rates, as we saw during the Clinton years. However, even a balanced budget does not begin to pay down this vast national debt, a burden which makes balanced budgets difficult because of the interest which must be paid right now. As our interest payments balloon, the funds available for everything else the government does must inevitably suffer. Soon our federal budget will fund unnecessary wars, Social Security payments, and little else.

How did it come to this?


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