It’s the wages, stupid.
The political mantra of both Obama and Mitt Romney is “jobs, jobs, jobs,” but the subtext is “lower wages, lower wages, lower wages.” – Jeff Faux, founder and distinguished fellow, Economic Policy Institute
As the son of working class parents who often held two jobs each to support the modest upbringing of their three children, I’m bemused by how little attention (and respect) is paid to working class and lower middle class Americans. We demonize the lower class, celebrate the wealthiest 5 percent and manufacture reasons to sympathize with households earning above $150,000 per year. But the working and lower middle classes are largely absent from our collective political imagination.
Well, if you haven’t noticed, average Americans aren’t doing very well. And it’s not because working class and lower middle class earners are lazy, stupid and financially reckless; my parents, for example, epitomize industriousness and thrift. Rather, far too many households have succumb to debilitating wage stagnation and decline, or as Jeff Faux writes,
In 2007, the year before the financial crash, a typical worker was making roughly the same hourly earnings—adjusted for inflation—that his or her counterpart had been making in 1979. Yet over those three decades, Americans bought more and bigger houses, crowded into shopping centers, paid for college educations, and retired better off than their parents. They did it in two ways. First, families responded in the 1980s by sending more people—typically wives—to work. Second, they borrowed, almost doubling the amount of consumer debt relative to income over three decades—with money lent to our banks by the Chinese.
Both of these financial cushions have deflated. There are now as many women in the workforce as men, and some 70 percent of married women with children have a job. The credit crash, which left millions bankrupt and insolvent, demonstrated that spending more than you are earning is not sustainable. So, unless a resurgence of real wages occurs over the next decade or so, most American families will be less able to maintain a middle-class income.
Benjamin Landy of The Century Foundation, a left-leaning think tank, suggests that American households increased debt to offset stagnant wages, as the chart below demonstrates,
Landy notes that real average annual earnings for production and other non-supervisory workers peaked in 1972 at $40,884; by 2008, average annual earnings dropped to $34,476, and American households mitigated the gap by more than tripling their ratio of credit to earnings compared to 1972 counterparts.
To a liberal stereotype like myself, the arguments made by Faux and Landy are logical and almost intuitive, though this is clearly not the case for everyone.