An article by Tim Mullaney published a few days ago in USA Today caught my eye. Based on research conducted by the Pew Research Center it focused on the stagnation of the middle-class over the last eleven years, calling it the "lost decade." This segment of American society has grown smaller, poorer and more pessimistic since 2000. No surprise to anyone awake but the research adds weight to the discussion.
According to the Pew data during this time period,1 in 5 middle-class households moved up (earning more than twice the national median average) and 2 in 5 moved down (earning two thirds of the median average or less).
The primary reason for this? The $7 trillion post-crash decline in home equity driving the economy since the mid-90s. Compared to upper income families with more diverse wealth structures, middle income families have (had) much of their wealth tied up in home value.
Overnight much of the equity disappeared and with it a big chunk of consumer spending. And not just spending, but growth in spending. Ugly. The official unemployment rate is 8.3 % but when the underemployed and those that have dropped out of the market are included the actual rate is more like 20 % according to info from the Gallop Organization. All of this a direct result of the collapsed housing bubble and $7 trillion home equity vaporization.
How long will it take for this lost equity to return? Who knows but surely not in the short term.
What other economic drivers are out there?
Government spending on cutting edge R&D (i.e. 60's style space race outlays)? No, this remains the domain of private enterprise.
Maybe transportation or other infrastructure repairs and upgrade? Not likely until the election is out of the way.
How about American manufactures all of a sudden ignoring the $1.68 per hour Chinese wage structure (or whatever it is exactly)? Nope, the rules of the Marketplace kick in here.
In this election there's all sorts of rhetoric about "job creation" and protecting the middle-class. I suggest not worrying about creating jobs, just zero in on critical infrastructure needs, set aside the money and let private businesses bid on the projects. As far as I know, privately owned construction companies actually require workers to do the work. Furthermore the longer these projects are delayed the more costly they become. For example the I-35 bridge that collapsed in Minneapolis (' 07) cost $5.3 million to construct in ' 64 and $243 million to replace in ' 08. Add to this $400k/day in estimated lost revenue to the Twin Cities and $30-40 million in lawsuit settlements. Yet all this is completely beside the point when the fate of the 13 killed and 145 injured are taken into account.
As for doing something for the middle-class ... I should hope so! The demise of this group is not in any one's best interest. Seriously, who's going to buy the goods and services if the middle-class continues to shrink? The last thing we want in this country is a paper thin and strapped economic mid-section. But this recession will take time to shake making it harder and harder for the middle-class. The "lost decade" could turn into two lost decades if we don't wise up as a nation.
Limited consumer spending means we shouldn't expect much near term growth in the economy. What's more, unemployment and underemployment may remain high exerting downward pressure on wages and the availability of benefits.
Needless to say this is not a time for those with jobs and those seeking them to relax. Certainly not. If you are looking, you are a Free Agent. If you have a job, you're one too. Act accordingly.
John Jeffery Lundell