Why The Middle Class Is Struggling

I’ve received lots of email recently from people who are out of work, about to lose their homes, and unable to find new employment. One among them named Mike mentioned that times are hard now, but weren’t easy before. He wondered if just getting back to the economy we had prior to the subprime meltdown would be sufficient. “Why,” Mike wrote, “is it so darned hard to get ahead in the land of the American dream?”

The Washington Post ran last month an interview with Elizabeth Warren, Chairman of the Congressional Oversight Committee tasked with scrutinizing how the Treasury Department has spent the $700 billion to shore up America’s failing financial institutions. The following excerpt from the article helps answer Mike’s question:

When we compare middle-class families today with their parents a generation ago, we have basically flat earnings — a fully employed male today earns on average about $800 less, adjusted for inflation, than a fully employed male earned a generation ago. The only way that houses could increase or families could increase their household income was to put a second earner into the workforce, and, of course that’s now flattened out because there aren’t any more people to put into the workforce.

So you’ve got, effectively, flat income in this time period — with rising core expenses; housing; health insurance; child care; transportation, now that it takes two cars to get everywhere, two jobs to support; and taxes, because you’ve got two people in the workforce and we have a somewhat progressive taxation system. So, families are spending a lot more on the basic nut.

The third leg to the triangle, and that is families, to deal with this, stopped saving and started going into debt.

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