This is really frightening. First, America’s workers lose their homes. Or the equity in their homes, or their ability to take out second mortgages to pay for unexpected expenses like a health care crisis. So they turn to credit cards. Now, those cards increasingly are maxed out.
Remember back when 401(k) plans were introduced as the promised land of personal control over our retirement destiny? While many workers who otherwise would have no retirement income have benefited from them, the proliferation of these defined-contribution plans gave employers more impetus to jettison the defined-pension plans that have helped ensure retirees don’t have to work until they die. And unlike the funds in traditional employer pension plans, 401(k) plans provide ready access to cash—a $3 trillion pool our declining middle class now is tapping into.
CitiStreet, Fidelity Investments and Vanguard Group Inc., the nation’s largest administrators of 401(k) retirement savings plans, all have reported increased early withdrawals from these accounts in 2007—the number of hardship withdrawals rose as much as 16 percent and 17 percent. To qualify for a hardship withdrawal, applicants must show financial adversity such as high medical or educational bills, facing foreclosure or repairing a home damaged by a natural disaster.
So why the cash drain?
For the past 30 years, wages have not kept up with productivity—and, in fact, productivity has soared while wages have flat-lined. To pay the bills, middle-income workers increasingly borrowed money to make it. Author Barbara Ehrenreich puts it this way:
Easy credit became a substitute for decent wages in this country. Twenty years ago, people earned money to buy a house. Now, you couldn’t make money on that scale—but you could borrow money.
For millions of us, debt has replaced the robust wages that U.S. workers, many with union jobs, were paid in the post-World War II years.
Access to these loans literally has papered-over the nation’s massive structural shift from the 1960s, when we were paid enough to live on, to today, when we can’t survive without going into debt.
If you’re John McCain, you say families who want to keep their mortgages, should work harder and do without. Here’s what McCain had to say about the millions of families losing their homes to foreclosure:
Of those 80 million homeowners, only 55 million have a mortgage at all, and 51 million are doing what is necessary—working a second job, skipping a vacation, and managing their budgets—to make their payments on time.
And if you’re among the nation’s nattering nabobs of neocons, you trash those who can’t afford to get by as living beyond their means. (McDonald’s is a luxury, after all.)
But as Harvard Law professor Elizabeth Warren repeatedly has pointed out, when most people file for bankruptcy, it’s because they lost their job or have suffered from a health care emergency—not because they went to the beach for one too many family vacations.
The papering-over of a U.S. economy based on low wages for workers and massive profits for corporate CEOs is unraveling. Pundits are comparing today’s current economic crisis with that of the 1970s based on such superficial similarities as high gas prices and rising inflation. But this is not another cyclical economic go-around. This is the crumbling of an unsustainable system built on the smoke and mirrors of a corporate-run economy.
Somewhere between the 1970s and today, while we were producing far more than we were paid, there was a corporate takeover of our government. And now Exxon Mobil and Co. run the show. Corporations have succeeded in electing to public office those who, like Bush, push the corporate agenda: policies that encourage corporations to send U.S. jobs overseas and that privatize service and deregulate industries, bust unions and give the wealthy massive tax breaks that don’t trickle down to the rest of us.
When the economy melted down in the 1970s and early 1980s, personal savings shored up working families and along with loans, helped them survive. Writes Donald Grimes, a senior research associate for the University of Michigan Institute of Labor and Industrial Relations:
In 1980 and 2005, the middle class was able to substantially increase its spending despite stagnant (manufacturing workers) or slowly increasing wages (nonmanufacturing workers).
But since 2005, middle-class workers have not been able to draw down their savings rate to support their spending. So their spending, not their income, is being squeezed now in a way that it has not been previously.
In 1980, our personal savings rate was 10 percent of our income. Now, it’s dead. Between 2006 and 2008, savings averaged .5 percent of personal disposable income. But that figure actually is much worse. An average rate includes the savings of the very wealthiest—meaning the savings rate for 90 percent of us likely is in the negative range.
We have no savings. Our homes have little or no equity—if we still have them. Nothing is left on our credit cards, so we’re robbing from our retirement future to survive. And this is not the fault of the plasma TV in the living room. It’s because we aren’t getting paid for what we produce.
New York Times columnist Bob Herbert wrote a sobering piece last week in which he quoted from letters written to Sen. Bernie Sanders (I). Sanders asked his constituents to describe their economic situations. He was stunned at the response. And this in Vermont, where "economically distressed" has up to now not been a phrase to describe the state’s residents. Writes Herbert:
A 55-year-old man who said his economic condition was "very scary," wrote: "I don’t live from paycheck to paycheck. I live day to day." He has no savings, he said. His gas tank is never more than a quarter full, and he can’t afford to buy the "food items" he would like.
His sense of his own mortality was evident in every sentence, and he wondered how long he could continue. "I am concerned as gas prices climb daily," he said. "I am just tired. The harder that I work, the harder it gets. I word 12 to 14 hours daily, and it just doesn’t help."
This is not uniquely American. This is a situation we see in countless other economic dictatorships. But unlike many countries, we still have the opportunity to turn around America.