The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net
I watched a lecture by Elizabeth Warren recently on UCTV that shed some light on the question of why Americans do not save any more. She did not blame the Fed or those superthrifty Asians and oil exporting countries. Tracing the effect of these external factors on spending decisions of a household would be difficult with any degree of rigor. Instead she looked at the income and expenses of American households directly, and made some shocking comparisons between the start of her time series (early 1970s) and the present. The gist is that the real incomes did not grow much, the income per worker did not grow at all (!), the discretionary expenses (the TVs and clothes and stuff people usually point to as symptoms of consumerist excesses) decreased, while the near-obligatory big ticket items that one cannot easily economize on (mortgage, health insurance, child care, transportation) grew dramatically. Note that this work does not need to invoke ‘moral shortfalls’ and other such nonsense to reach its conclusions. It is left as an exercise to the reader to deduce the connection between this deterioration of household cash flow and Fed’s actions if you are so inclined.
