Economies ebb and flow much like ocean tides. At times, a rising tide has the capacity to buoy all boats, even those piloted by those who contribute little. Conversely, when the tide recedes, even the most industrious may find themselves struggling. There are periods when simply showing up to work is met with rewards, yet there are also times when hard work yields nothing but pain. Regrettably, recent years have shown an economy that offers more hardship than opportunity. The Federal Reserve confirmed these troubling trends on Monday, revealing an even bleaker situation than we had anticipated.
In its Survey of Consumer Finances, the Fed disclosed that U.S. wealth plummeted by nearly 40 percent between 2007 and 2010, effectively wiping out 18 years of progress in median household net worth. Specifically, median net worth dropped from $126,400 in 2007 to just $77,300 in 2010—levels not seen since 1992.
The housing market crash and the evaporation of perceived wealth have prominently driven this reduction in middle-class net worth. Additionally, earnings are declining as well. According to the Fed, median family income fell from $49,600 in 2007 to $45,800 by 2010, translating to a 7.7 percent decrease.
For some families, the losses have been far more severe.
The Smith Family’s Struggles
Consider the Smith family from Morris County, New Jersey. “Four years ago, Mr. Smith lost his lucrative job at a telecom company after two decades and ended up working as a shoe salesperson for $10 an hour,” reports CNNMoney.com.
“In the blink of an eye, their annual income plunged from $130,000 to just $15,000. According to the United Way, a family of four in this part of New Jersey requires at least $60,000 a year to make ends meet.
“They currently receive $250 in food stamps, but this assistance may soon end as Mr. Smith has secured a new job selling janitorial supplies, pushing him above the aid threshold. He now earns around $15 an hour, while his wife works part-time at a local bakery for $9 an hour, raising their annual income to approximately $18,000.
“Unable to sell their home, the Smiths ceased mortgage payments in 2009 and expect foreclosure any day now. They hope to move in with friends once that happens.”
The Smiths are undoubtedly good individuals. They simply fell victim to circumstances beyond their control in a challenging economy. Unfortunately, they must now navigate the consequences of these troubles.
Faux Capitalism and Its Consequences for the Middle Class
Sadly, the Smith family is not alone; millions are experiencing similar hardships. Despite years of dedication and labor, their financial health has been thoroughly undermined over the past five years. Some families may never fully recover from these setbacks.
Since 2008, the Federal Reserve has enacted policies that once belonged only in the realm of wild academic speculation. For instance, they drastically lowered the federal funds rate to near zero and generated $2.3 trillion from thin air to lend to the treasury. Despite these measures, the unemployment rate remains above 8 percent, excluding all those who have exited the workforce.
Additionally, beyond fostering immense governmental debt, these erratic actions have disproportionately harmed the middle class. The massive debt incurred will serve as a permanent anchor for middle-class families. Future generations may find themselves toiling their entire lives just to manage the debt stemming from the artificial money created to rescue financial institutions.
Regrettably, this reflects the grim reality of faux capitalism practiced in much of the western world—where profits flow to the wealthy while losses are borne by the middle class.
Yet, the middle class remains resilient. Despite repeated setbacks, they cling to the hope for a better future. With grit and determination, they strive to rebuild, but if they face another five years akin to the previous ones, they may truly succumb to despair.
Sadly, that would provide the government a perfect opportunity to roll out the next grand program and expand its reach—all in the name of “saving us” while only worsening conditions.
Sincerely,
MN Gordon
for Economic Prism
Return from Faux Capitalism and the Great Middle Class Debt Anchor of All to Economic Prism