Friday, July 9, 2010

Dispatches from the front line of the recession.....

My name is Tom, and I worry a lot. With the way the world is these days, I’d be a fool if I didn’t worry. In fact, I’m outright scared about the future.

I’m 31 years old, and probably typical of my generation. I grew up in the family construction business and am no stranger to hard work. I have degrees from a couple of good schools, at which I worked very hard and partied depressingly little, and had very good grades. Merit scholarships and federal student loans paid for most of my education. I work for an engineering company in a complicated and evolving technical field-- finding and cleaning up oil spills and toxic waste, a demanding and sometimes dangerous job. Through my job, I get a 401k and health insurance. I have a few other investments, but I play it safe--no risky high-yield CMBs or CDOs, just blue chips, CDs, and a few select tech stocks. I keep a budget and stay out of debt.

So why am I scared? I’ve worked hard, played by the rules, lived within my means, and generally been a good little capitalist trying to live the American dream. By the logic of the Republican Party and Tea Party, I’ve done everything right and kept the faith with the religion that is American-style capitalism.

I’m scared for three reasons.

The first reason I’m scared (and also very angry) is because someone else screwed up my future by playing drunken baccarat with the stock market and real estate. This country had a hell of a party between 2001 and 2008, but now the hangover has set in and the bar tab is waiting to be paid. The economic picture shows no real signs of improvement, and in fact promises to get worse. I’ve never had to collect unemployment—fortunately—but I don’t expect that lucky streak to continue much longer. Something like a quarter of my friends are unemployed, as one economic sector after another succumbs to the crippling starvation of the recession– manufacturing, construction, real estate, even professionals like engineers, architects, and lawyers.

The second reason I’m scared (and very frustrated) that the economy has me on a treadmill that makes it progressively harder for people like me to get ahead, or even to stay afloat.

The problem isn’t how hard I work, but that for most people the same amount of work gets you less these days than it used to. The Economic Mobility Project, an initiative of the Pew Charitable Trusts, found that the average income for men in their 30s in 2010 is 12% less than it was than for the same age group in 1974. Real wages have remained essentially stagnant, rising only about 3% since 1999. Inflation for the same period was 28.5%. The median wage, when adjusted for inflation, actually declined 2% between 2003 and 2006, during the glory days of the Bush Bubble.

Case in point—it’s virtually impossible for a couple in their 20s or 30s to afford a home on one salary now, since real estate prices and inflation left salaries behind fast enough to leave Back To The Future-style flaming tire tracks. In 1975, a married couple could make it on one salary, but just try that now and you’ll see how much things have changed. For thirty years we bridged the widening gap between income and costs by turning to home equity loans, credit cards, borrowing against 401ks and IRAs, and shenanigans like second mortgages, trying to rob Peter in order to pay Paul, but none of that changed the bitter reality that our own economy was leaving us behind. Even our investments have gone fallow, as the artificially low interest rates which the Federal Reserve maintains in order to encourage lending have reduced the return on investments.

Out of those proportionately smaller wages, we have proportionately higher mandatory expenditures—taxes and other things that we’re required to shell out on. I’m not really that worried about taxes—I have a realistic idea of how much of my income goes to taxes and what I get out of them. Roads, for example. I like roads. I like sewers and snowplows and fire departments and clean drinking water too. I haven’t seen any of the supposed socialist overtaxation that has the Tea Party all worked up, and in fact I pay less percentage wise than I would have paid thirty years ago. The amount I pay in taxes is tiny when compared to health care, rent, and other necessities.

Of all my financial responsibilities, health care scares me the most, and not just because I spend on it several times what I pay in taxes. It’s hard to get treatment in the US if you don’t have health insurance, which most working people get through their jobs like I do, and premiums consume larger and larger chunks of our shrinking incomes. As it is, health-care premiums for families have risen 119% since 1999, while inflation has risen 28.5% and real wages are, like I said, essentially stagnant. Our company’s health care plan premiums increased by 40% in 2009. That’s hard to swallow. To make matters worse, if I lose my job, I also lose my health insurance. Since I live in Massachusetts, where health insurance is required by law, I would have to either pay out of pocket for private insurance at a migraine-inducing rate, or apply for public insurance. This is why I supported a public option, and still do.

This situation is why I have a good full-time job, but do not own my own home, and drive a ten-year-old car. I probably could buy a house now, but haven’t done so because if I lose my job, as is possible, mortgage payments would put me under sooner or later. I have no real security. One major illnesses, bad investment, or big risk could wipe out everything I’ve managed to save.

I’ve resigned myself to the truth, which is that I just won’t be able to afford the same stuff my parents could. Forget the vacation cottage (my favorite spot on Planet Earth). Forget the big house in the country, the boat, early retirement (or any retirement at all) and a couple of hobbies—all the brass ring stuff that’s supposed to be the reward Americans work towards. Unless things take a major, long-term change, my generation will be the first to have a standard of living that’s not as good or better than their parents’.

The third reason I’m scared (and pessimistic) is that I don’t know whether things will get better or worse over the next few years. This is where we step beyond my life into the jungle of economics.

The US economy is fundamentally consumer-driven these days, fueled by sales of consumer goods and services to ourselves—the US doesn’t really sell much to other countries anymore. What happens to the economy when consumers’ pockets and credit have been so thoroughly drained that they can’t afford to consume at the same rate? The whole economy runs out of gas. The laid-off construction worker can’t buy a new car, which leads to lower auto sales, layoffs of care salesmen and factory workers, and so on. That’s the sort of trickle-down economics that matter these days, not the Reagan-era wishful thinking. Robert Reich agrees with me on this.

To his credit, President Obama was refreshingly forthright when he warned the country to expect a slow recovery, since that’s the only kind we’re likely to get. The comparatively quick and stimulus-free turnaround of the early 1990s was an anomaly, not the rule. Still, there are ominous rumblings that that the Obama administration’s Keynesian “pump-priming” stimulus programs will be shut off at the tap by deficit hawks and politicians eager to score easy points by describing the unemployed as lazy drug addicts.

I have to say I’m extremely skeptical when it comes to the gospel of extreme free-market deregulation preached by Rand Paul and some of the Republicans in Congress. That’s what got us here in the first place. Capitalism is not perfect and the free market is blatantly fallible--most of the regulations that corporations find onerous were created in order to prevent a disaster like the Crash of 1929 from happening again. For example, the Glass-Steagall Act of 1933 (repealed in 1999) required separation between banks investment and depository organs, and in doing so prevented exactly the sort of bad-investment apocalypse that happened in 2008.

If their god is ‘market forces’ and their religion is free-rein capitalism, then I’m sorry to have to say it, but their god failed, and turned out to be a real jerk in the process. It gave us stagnant wages at home, millions of jobs outsourced to China as a way for corporations to save a buck, and an economic system increasingly balanced against the middle class.

If it’s all the same to you, I’d rather lose sleep over nuclear annihilation than over my health insurance.


Julie B. said...

Well-written post, Tom, and I can relate to the concerns you are having. In this day and age, no one should have to worry about health insurance, or the economy, especially with all the so-called promises thrown our way that things are going to get better, and things are going to get fixed. Yeah, hasn't happened yet. Enough promises..let's see something done about it for real. Garrett earns a decent salary, and we still can't afford a house, due to the steep housing market. It's ridiculous. Glad to be following your blog!

Ed Stansfield said...

Hey Tom,

A well written essay as always. The biggest problem with the economy seems to be debt. Government, corporations, consumers and home-buyers have accumulated a tremendous amount of debt over the past 20 years. This has led to corporations going out of business (Enron) companies being bought out by others (mergers) and homes going "under water."

Government and the federal reserve contributed to the problem. They imposed excessively low interest rates, and used the tax code and government run corporations (Fannie Mae, Freddie Mac) to encourage people to buy homes they couldn't afford with mortgage, thereby destabilizing the housing market.

You are right about the Glass-Steagull act. Allowing banks to become "too big to fail" was definitely a dumb idea. However, I doubt that digging the government deeper into debt is the answer. If you look back at the history of the 20th century, I think you will find that the practice of using deficit spending to stimulate a recessionary economy usually gets poor results (France in the 80's, Japan in the 90's, et cetera). I'm more inclined to think that cutting spending, reducing debt, and strengthening the dollar would be more effective over the long run. I am of course advocating a course of action neither party has attempted in the last decade, which is why I'm convinced its a brilliant idea.

No one sympathizes with the unemployed more than me, I am one of them. However, I doubt that having the government throw money at the problem will be likley to solve it.

BossLadyWhite said...

I couldn't agree with you more,Tom.WHY do any Amerivans have to worry about health insurance?In MA yes,we are required...which(I hope I don't get slaughtered fo rthis comment but)brings me to a sidebar comment:illegal imigrants are granted MassHealth,etc. (or whatever state one lives in)HEALTH INSURANCE.Not a prejudiced nor racist person but I feel that those who are rightfully here should at least have first dibs at the free stuff or the reduced stuff,etc. I know of too may people who work and have health insurance through their employment,but still have to partially buy into Mass Health or Commonwealth Care or whatever..somethign is just wrong there.Most other countries provide their citizens with the essential need ssuch as insurance,food,etc.BAH! Great post ,Tom