GOOD ECONOMIC TIMES?

Many Americans know that, despite a family income level that looks pretty good on paper, it is harder and harder to make it. Even middle-class families with household incomes above the U.S. median of $48,201 report that they struggle to cover just their expenses, let alone put anything aside in savings.

While today’s average two-income family earns more money than yesterday’s single-income family, today’s families have only about half the discretionary income available to single-income families of the 1970s. The media may report middle-class spending on lattes, designer clothes, and large vehicles, but the real culprits of the middle-class squeeze are fixed expenses -- housing, car payments, taxes, and health insurance premiums. These basics, according to Harvard University law professor Elizabeth Warren, now consume three-fourths of each family’s purchasing power, compared to just half in 1973.

Average Americans pay twice as much for housing than they did during the 1970s. Meanwhile, health insurance premiums are rising at an astronomical rate: 6.1 percent this year alone and 78 percent since 2001. Over the past six years, inflation went up 17 percent; wages increased 19 percent. Says economist Jared Bernstein: “Consumers are asking, ‘If the economy is doing so well why am I feeling so squeezed?’ Well, they feel squeezed because they are squeezed.”

Today’s families live with two new and very scary prospects. First, their adult children lack health insurance. Adults between 19 and 29 now make up 30 percent of the 45 million uninsured Americans. Second, they have no money to fall back on in case of emergency. Forty percent of Americans don’t have savings of even one month’s income, even though the chances of being laid off have doubled since the 1970s.

Meanwhile, the gap between rich and poor is growing at a rate not seen in this country since the 1920s. Consider these examples:

• For the first time since Jimmy Carter was in office, homeownership is set to decline over a President’s tenure in office, to the tune of 700,000 fewer homes today than in 2001.
• The share of national income controlled by the richest Americans has hit a postwar record. The wealthiest one percent of Americans earns over 21 percent of all income; the bottom 50 percent earn less than 13 percent of all income.
• Median earnings for full-time workers fell one percent last year, continuing a quarter century-trend of stagnating median family income despite higher productivity.
• Over the past two decades, the net worth of the top two percentiles of American families doubled from $1.071 million to $2.1 million — while the net worth of the poorest quarter of Americans actually declined.
• The top 25 hedge-fund managers earned more money in 2004 than the CEOs of all the companies in Standard & Poor’s 500-stock index combined.
“We’ve had a 30-year trend of increasing inequality,” says Brookings Institution scholar Jason Furman. Yet, writes journalist Harold Myerson, it is difficult for a people “who are conditioned, as Americans are, not to see their nation in terms of class” to recognize that “their nation’s class structure has slowly but fundamentally altered.”

Economist Amelia Warren Tyagi has an idea why, in the face of such inequality, people tend to focus on lattes and designer jeans:

“Frivolous spending is visible, and it’s easy to pass judgment on. There is a comforting notion that if you’re not spending wildly you are safe. If you are deeply invested in the belief that everyone can solve their problems on their own, then there’s no systematic problem… Perhaps the most important thing we can do is persuade people that it’s not about the lattes. [The] ‘latte factor’ is a way to distract people from the real changes in the economy. Those who shake their fingers . . . can feel good about themselves, both for their own economic prosperity and for the fact that those who are in trouble are there because of their own personal failings.”

--Glenn Feldman

Dr. Glenn Feldman is the Director of CLEAR (Center for Labor Education and Research) on the campus of the University of Alabama Birmingham (UAB). CLEAR designs and presents university level education programs for workers and their representatives. Each class provides the information and skills workers and their representatives need to be more effective. Classes are tailored to meet the needs of each group.