Robert Reich: this is not just another business cycle

Robert Reich, the 22nd Secretary of Labor and a Professor at UC Berkeley, maintains his own -- and frequently very interesting -- blog. His latest post discusses why the current economic & housing downturn is due to much more than the latest business cycle; in fact, it theorizes that the American consumer is simply out of coping mechanisms in a time of a steadily declining standard of living:

The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is now ending. Americans are beginning to feel the consequences.

The first coping mechanism was moving more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970 – from 38 per cent to close to 70 per cent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. These families are known as Dins: double income, no sex.

But we reached the limit to how many mothers could maintain paying jobs. What to do? We turned to a second coping mechanism. When families could not paddle any harder, they started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared with any other advanced nation we are veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

But there is also a limit to how long we can work. As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time. With housing prices rising briskly through the 1990s and even faster between 2002 and 2006, we turned our homes into piggy banks through home equity loans. Americans got nearly $250bn worth of home equity every quarter in second mortgages and refinancings. That is nearly 10 per cent of disposable income. With credit cards raining down like manna, we bought plasma tele­vision sets, new appliances, vacations...

Most Americans are still not prospering in the high-technology, global economy that emerged three decades ago. Almost all the benefits of economic growth since then have gone to a small number of people at the very top.

The candidate who acknowledges this and comes up with ways not just to stimulate the economy but also to boost the wages of the bottom two-thirds of Americans –- through, say, a more progressive tax (including a larger Earned-Income Tax Credit), stronger unions and, over the longer term, better schools for children from lower-and moderate-income families and better access to higher education –- will have a good chance of winning over America’s large, and increasingly anxious, voters.