Why Main Street Isn’t Getting Any Better

jobsToday’s most important economic news: U.S. household debt fell for the seventh straight quarter in the first three months of 2010 as Americans continued to respond to the recession’s fallout.

But like all economic news, its significance depends on where you’re standing — whether you’re a typical American or someone at the top.

The common wisdom is that excessive debt-financed spending was one of the causes of the recent recession, so the news that household debt is dropping is being celebrated by business cheerleaders as reason to believe we’re on the mend.

Baloney. The reason so many Americans went into such deep debt was because their wages didn’t keep up. The median wage (adjusted for inflation) dropped between 2001 and 2007, the last so-called economic expansion. So the only way typical Americans could keep spending at the rate necessary to keep themselves — and the economy — going was to borrow, especially against the value of their homes. But that borrowing ended when the housing bubble burst.

So now Americans have no choice but to pare back their debt. That’s bad news because consumer spending is 70 percent of the economy. It helps explain why we so few jobs are being created, and why we can’t escape the gravitational pull of the Great Recession without far more government spending.

It’s also a bad omen for the future. The cheerleaders are saying that for too long American consumers lived beyond their means, so the retrenchment in consumer spending is good for the long-term health of the economy. Wrong again. The problem wasn’t that consumers lived beyond their means. It was that their means didn’t keep up with what the growing economy was capable of producing at or near full-employment. A larger and larger share of total income went to people at the top.

So in the longer term, it’s hard to see where the buying power will come from unless America’s vast middle class has more take-home pay. Yet the economy is moving in exactly the opposite direction: Businesses continue to slash payrolls. And the hourly wage of the typical American with a job continues to drop, adjusted for inflation.

robert_reich.jpgHere’s more news: A Federal Reserve report Thursday showed the net worth of Americans rose a fourth straight quarter in January-March. Don’t be fooled by this one either. That increase was almost entirely based on the stock market’s rise in the first quarter. But the market has since fallen back to where it was at the start of the year. More to the point, most Americans don’t have many assets in the stock market. To the extent they have any net worth, it’s in their homes. And home prices continue to languish.

Don’t be fooled by the cheerleaders. The economic news continues to be dismal.

Robert Reich

This article first appeared on Robert Reich’s Blog. Republished with permission


  1. Marie R. B. says

    And don’t be fooled by the Economist, they too have an agenda, if things aren’t being played out the way they think it is not correct. I think that it depends up on what State one lives in that they can see jobs returning it also depend up on communities as well, where joblessness hit the hardest it would be hard to see growth especially for those who are still unemployment.

    The reeducation of the people is a good ideal that the president and other have however if one is not employed he/she are less likely to go to school with out any kind of income to pay the basic for living, this person will be beating the pavement trying to find work, Reeducation with a guarantee of employment is a much better ideal now one can see how he/she can afford to reeducate themselves, another ideal is to reeducate with earn as you learn, that is even a better ideal, which give more incentives tax cuts helps but with out employment what taxes are there to cut. The Economies can state every thing that is wrong but no good ideal on how to fix the situation, each have their own agenda.

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