There are a lot of people out there, if you were to ask them what caused our current economic situation, they would tell you that it was the bursting of the housing bubble, which lead to the fall of several mega-banks (which shouldn't exist), which lead to the freezing of credit/lending markets, which squeezed businesses and consumers alike, who were unable to get the financing for whatever they needed to accomplish. Now, all of those things did happen, but that was not the beginning... that was the culmination. The "crescendo" if you will.
I'm sure there are a lot of fables/parables I've heard over my lifetime that I have forgotten, but one I've never forgotten is the story of the frog in the water. It goes something like: "If you place a frog into boiling hot water, he's going to immediately jump right out... but if you put a frog into room temperature water... and SLOWLY raise the temperature, he will stay in the water, and he will die."
The problem is not that... out of the blue, the economic situation in the United States fell through the floor 18months ago... the problem is that... over the last 35 years... the economic situation in the US has slowly been in decline. Wages in this nation have been falling for years. Its only been "masked" with the fact that more and more women have been joining the workforce since the feminist movement of the 60's. So, even with women joining the workforce steadily for the last 35 years (more 2 income households)... the median household income has been virtually unchanged. How is that possible? How much has individual income dropped? And while income is stagnant, how about the COST of living? You're making the same amount as your parents did at your age, but what is the purchasing power of the dollars you're making compared to theirs? Or to put it another way: How much can a 1984 salary buy in 2009? How much does food cost now? Healthcare? Higher education? (which is FREE in Europe, btw) Housing? Etc... etc...
People can not afford homes... this is the problem for the housing sector. The price of owning a home has skyrocketed, while wages are the EXACT same. Its not just that wages aren't going up as fast as home prices, its that wages are not going up at all. Home developers still have the goal of selling homes, they dont make them to have large lots of beautiful unsold developments... so they are now forced to either lower their prices to accommodate the people or make the credit terms very "unconventional" (and unsustainable?). What do you think they're going to do? But, the person who sells the home doesn't plan on finding out if all these people can afford homes with variable interests rates and ballooning prices, so he's bundling all these mortgages (which use to be safe investments for banks) into "securities" and selling them off to giant financial institutions. So, the guy who decides whether or not you qualify for a home, he's not worried about the risk of your default, like previous generations. That problem is being passed to someone else. He's going to get creative with the numbers and let Goldman Sachs or Bank of America worry about a potential default. This only "masks" the wealth disparities even longer... and the water continues to boil.
My fear is, we are heading to a place like Medieval Europe or some modern developing nation, in terms of the DISTRIBUTION of wealth. I know businesses hate when people use that phrase, and they like to call people socialist when you mention that phrase, but thats because they enjoy the benefits of the CURRENT (lack of) distribution of wealth. I've said it before, and I'll say it again, last year the OECD determined that out of the 30 most developed nations, the United States has the third to WORST income inequality in the world... behind only Mexico and Turkey. We're only better than Mexico and Turkey??????? My fear is the "middle class" will begin to dwindle substantially and trickle down into the lower groups... and we'll have a large poor population (27%?)... the largest group will be a 'just barely getting by' working class (47%)... the middle class will be a small group of about 16%... the upper middle class will be about 8% and you'd still have the wealthiest Americans at about 1 or 2% of the population.
The water temperature has changed too slowly for those that are unaware and disinterested, but the last 35 years have been an INDICTMENT of [Republican] free market capitalism. Our current economic disparity is on levels unseen since the era of the Great Depression. The president of the time was Herbert Hoover who famously opined: "the only problem with Capitalism is capitalist, they're too damn greedy." That sums it all up. The markets can not be trusted. They will look out for themselves, by any means necessary. Ronald Reagan, among other things, was a liar; trickle down economics doesn't work. It doesn't exist. You take care of the top 5% of Americans, and the money never trickles down. Why would it? They have the power and influence to keep the money at the top, while the bottom 90% of the population fights over the remaining 5% of the nation's wealth. I dont even understand why that moron is so popular... particularly with working class republicans who he screwed for years. While Reagan spent the 1980's dismantling regulatory systems, 40 years prior, FDR made government HUGE. Large levels of regulation were inacted after he replaced Herbert Hoover. The government got involved in things that drove free market idiologists crazy. But what were the results?
Economically, you saw the income disparity of the 30's begin to subside. The 50's are considered the golden age of economic equality and mobility in the United States and in my opinion, it was government regulation on corporations, (can't forget the power of the union bosses) that gave people that opportunity. Government handouts (e.g. the original incarnation of the GI Bill) that pulled people from the working class and up into the middle class. Nobody cried "socialism" then. They were too busy enjoying the benefits: buying large Chevy cars, moving to the suburbs and going down to the Diner and the Drive-In. At its least lopsided, CEO's made about 50 times as much as the average employee in their company... today its about 500 times. Yet, the frog stays in the water. The water changed temperatures too slowly to enrage the frog. America has never been equal, it will never be equal... but there was some semblance of "real" opportunity for LARGE groups of people. You can not say that today. And this isn't something that is new for the last 18months. People have been living with inequality for a couple decades, its just become more VISIBLE for those... who have CHOSEN to ignore it. Much to their dismay, they can't help but see it now... especially when they are stuck at a light on a busy intersection and see the fruits of the free markets staring at them with signs. God bless America.
With all the money that is now required to run a campaign, with the high costs of tv advertisements... it seems that politicians are more malleable than ever. There are a lot of people who would be considered left of (the American) center, myself included, who hoped that Barack Obama would be FDR-esque in his combativeness with Wall Street. So, far, we haven't seen it... its been very concillatory with people he doesn't need to play ball with. I dont expect anything from the red team, I dont have any plans to ever join the red team, but the blue team use to stand for unions, economic opportinity, level playing fields, government assistance... and I dont see that President Obama is willing to act boldly for that level of sweeping reform of the current "post-Reaganomics" system.
I was listening to Nobel Prize winning economist Paul Krugman a few days ago who also opined his displeasure that Obama isn't as FDR (big govt/regulatory/reform) as he thought he would be. Never a good sign when an economist is saying that the American dream, as we have understood it, is in the process of dying, if indeed... the dream is not already dead.
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