The Coming Collapse of the Middle Class

[sharon sanders]

hat tip Blue -

Excellent video University of California lectures


http://www.youtube.com/watch?v=akVL7QY0S8A

 

[AlaskaDenise]

Re: The Coming Collapse of the Middle Class

Very interesting talk.

It certainly clarifies how "doomed" many famlies are.

Unfortunately, she didn't propose any answers.

.

 

[cartski]

Re: The Coming Collapse of the Middle Class

Very interesting talk.

It certainly clarifies how "doomed" many famlies are.

Unfortunately, she didn't propose any answers.

.

So the only point of the lecture was to make herself some money (it's often more lucrative to talk about the economy than to invest in it) and to make all the rest of us even more depressed?

[In fairness, I haven't seen the video yet.]

J.

 

[mixin]

Re: The Coming Collapse of the Middle Class

LOL at Cartski. Yeah, we can go to doomer boards and get all the depression we want for free, other than the cost of the net.

Those of us on dial-up are cheated out of the pleasure of her depressing lecture.

 

[AlaskaDenise]

Re: The Coming Collapse of the Middle Class

It was informative in the sense that it clarified that the causes of middle class families financial woes are not what many people assume. The point is that many of the financial liabilities that put families in financial stress are supposed necessities - not high consumption of optional goods and services. I say "supposed" necessity, because I believe that financial security may well be dependent on simplifing our lives, including lowering our standard of living.

I think the clarifications are well worth taking an hour to listen to the lecture. It contributes to understanding how reasonable responsible people can end up in financial trouble.

Perhaps she assumes the listener can come their own conclusions about any solutions.

.

 

[sharon sanders]

Re: The Coming Collapse of the Middle Class

from something we talked about in June 2006:

"...Economic development where all incomes rise in tandem is an economy is in balance between intellectual, physical, and spiritual needs of the populace. In the <st1:country-region><st1lace>United States</st1lace></st1:country-region> productivity is up but real wages are down ("wage gap"):

• “Inflation-adjusted hourly and weekly wages are below where they were at the start of the recovery in November 2001. Yet, productivity—the growth of the economic pie—is up by 14.7 %.) <o></o>
• Wage growth has been shortchanged because 46% of the growth of total income in the corporate sector has been distributed as corporate profits, far more than the 20% in previous periods.<o></o>
• Consequently, median household income (inflation-adjusted) has fallen five years in a row and was 4% lower in 2004 than in 1999, falling from $46,129 to $44,389.^”http://www.epi.org/content.cfm/pm110<o></o>

This kind of disparity causes a weakness in the ability of the common man to be able to accumulate savings. This accumulation insulates the economy against cyclical downturns. So by maximizing profits and therefore “holding the line” on wages the ability of the citizens to spend the <st1:country-region><st1lace>United States</st1lace></st1:country-region> out of a cyclical down turn becomes unlikely. This will, ironically, affect the very profits that were targeted for optimization.

We have a situation, now, in the <st1:country-region><st1lace>United States</st1lace></st1:country-region>, where the living standard is not increasing for all due to the “wage gap”. The economy is not balanced. If worker wages rise in tandem with productivity increases then the financial strength of those workers is increased. The spirit is enhanced. National demand is able to keep up with national supply and the economy is not dependant upon “artificial spending” which is the accumulation of debt. The mass accumulation of debt is very destructive to the spirit.

Consumer debt is at record levels in the <st1:country-region><st1lace>United States</st1lace></st1:country-region>. The accumulation of debt due to the “wage gap” and the material society that is prevalent are the culprits. http://www.monthlyreview.org/0506jbf.htm ..."


http://www.flutrackers.com/forum/showthread.php?p=17028#post17028

 

[cartski]

Re: The Coming Collapse of the Middle Class

It was informative in the sense that it clarified that the causes of middle class families financial woes are not what many people assume. The point is that many of the financial liabilities that put families in financial stress are supposed necessities - not high consumption of optional goods and services. I say "supposed" necessity, because I believe that financial security may well be dependent on simplifing our lives, including lowering our standard of living.

I think the clarifications are well worth taking an hour to listen to the lecture. It contributes to understanding how reasonable responsible people can end up in financial trouble.

Perhaps she assumes the listener can come their own conclusions about any solutions.

.

If the author can assume that her analysis is required for the listener to identify the causes of the financial woes, the assumption that the listener can come up with solutions is a non-sequitor, IMO. Causes and problems are easier to find than solutions. If the author's target audience does not have the capacity to identify causes, it won't have the capacity to find solutions either.

I'm sorry, for my flippant, arrogant tone, especially for something I've not even seen (from computer woes, not idleness). But I'm as battered as anyone else in the middle class, and being told from atop another intellecutal bandwagon that the sky is falling without the proposal of some kind of action doesn't add much value, IMO.

Time to go speed skating. A simple necessity, and a good deal, north of the 49th parallel.

J.

 

[AlaskaDenise]

Re: The Coming Collapse of the Middle Class

......the proposal of some kind of action doesn't add much value,

Agreed.

And we cannot create solutions until we have an accurate definition of the problem. Too many folks pontificating without an honest appraisal of the problem - which I believe this lecture accomplishes.

.

 

[sharon sanders]

Re: The Coming Collapse of the Middle Class

It is very easy to give a lecture and it is quite something else to provide answers. This lecture identifies the problem which is the first step to solve the problem.

The main problem is that household income has risen only because of the addition of a second full time worker - the wife (or significant other). Wages (adjusted for inflation) of men have remained stagnant for 30 years.

The lecture addresses - Given the increase in family income, why are families poorer?

Increase in housing due to parent "buying school" districts,

Taxes,

Transporation,

Day care

Health care


Now that we have semi-quantified the problem we can formulate ideas how to change the dynamic.

Anyone?

:smartass:

 

[Farmer]

Re: The Coming Collapse of the Middle Class

It is very easy to give a lecture and it is quite something else to provide answers. This lecture identifies the problem which is the first step to solve the problem.

The main problem is that household income has risen only because of the addition of a second full time worker - the wife (or significant other). Wages (adjusted for inflation) of men have remained stagnant for 30 years.

The lecture addresses - Given the increase in family income, why are families poorer?

Increase in housing due to parent "buying school" districts,

Taxes,

Transporation,

Day care

Health care


Now that we have semi-quantified the problem we can formulate ideas how to change the dynamic.

Anyone?

:smartass:

Well! I certainly don't have answers. Thanks for posting the link, it was very informative.

I took away the message that risks and cost have systematically been shifted to the individual middle class family unit - education, health care, retirement. That having children is risky for your financial health, and that many of us can 'make it' if we are lucky: no job loss, no serious illness, and no family break-up through death or divorce.

Childless people without these common misfortunes may be able to save enough and/or take on less debt to provide themselves some financial security.

All I can think of to reverse the trend is to cut your cost of living dramatically and save, save, save. That way there is a cushion if misfortune occurs.

 

[Blue]

Re: The Coming Collapse of the Middle Class

The value in her lecture was that she pointed out the fallacies that many people had assumed to be the cause of the problem. Many of the families of the middle class are just about at a survival level. They are trying to take care of their kids, and keep from falling into poverty. That fall is very close for many. It would not take much.

If you watch the video, you get the sense that the speaker really does care. She is issuing a warning just like we do here about the possibility of pandemic. To fix things, we have to know where it all went wrong. The govt keeps very precise figures about what we spend our money on. It is not what many assume to be true. You have to look at the data before you voice an opinion about what it all means. Only then can we try to come up with solutions.

If you talk with your friends about this video, you will quickly get a sense of how very frightened many people are about their situations. How many of us know someone who is about to declare bankruptcy or let their home go into foreclosure? This is big. When the middle class has disappeared there will only be the haves and the have nots, no in between.

 

[kent nickell]

Re: The Coming Collapse of the Middle Class

I thought this was a very interesting talk by Elizabeth Warren given about 2 years ago. A lot of it was based on her 2003 book 'The Two Income Trap'. She talks a lot about how adding a second family member to the work force has not led to better overall conditions but that we went down a path of decreasing family savings and increasing debt due to homes, autos and credit cards. She talks a lot about this change happening over a one generation period of about 30 years from 1974 to 2004 where credit card debt for instance went from 1% to 15% of income and savings from 11% to below 0. She talks about the fragility of a working family that becomes dependent on both incomes.

She also brings up the rising cost of health insurance as another huge elephant in the living room. She sees a number of bankruptcies being caused by either one of these 2 workers or a family member such as a child or parent becoming sick with a serious illness requiring a worker to take significant time off work and taking needed income out of the family budget. We are currently seeing many gaps in the health care system with unemployment and decreased worker benefits..

Interestingly her new job is as the head of the congressional oversight committee looking into how the TARP funds have been spent and are being spent...

http://fabiusmaximus.wordpress.com/2009/02/14/paulson-plan-3/

Fabius Maximus
14 February 2009

Update: yes, the Paulson Plan was just theft


Opening of “The Paulson Plan will buy assets cheap, just as all good cons offer easy money to the marks” (30 September 2008):
“Buy this because it is extraordinarily cheap. The owner must sell right now because…”

This is the opening line of a thousand confidence games. Stories told by well-dressed, smooth-talking grifters. Like many of those sent out to sell the Paulson Plan (which is not dead, as Congress will certainly reconsider some form of it later this week).
The government can buy financial assets from the world’s leading financial firms at prices so low that substantial profits are likely.
Read those words. Confidence tricks require marks, people who believe preposterous statements about promised gains if stated authoritatively and backed with a slick story.
“The Paulson Plan Will Make Money For Taxpayers“, Andy Kessler, Op-ed in the Wall Street Journal, 25 September 2008
“Bailout May Be Granddaddy of All Carry Trades“, John M. Berry, Bloomberg, 26 September 2008
“Taxpayers can still benefit from a bail-out“, Lawrence Summers, op-ed in the Financial Times, 28 September 2008

Now the Congressional Oversight Panel tells us the tab after the first few months of the “THEFT TART (Troubled Assets Relief Program): $78 billion. Don’t worry, the money was not lost. It’s just moved from your pockets to those of people with great political influence.

Only fools expected any other outcome. And the meter is still running, with the losses mounting day by day. To read the unpleasnat details see “Congressional Oversight Panel Releases Third Monthly Oversight Report: Valuing Treasury Acquisitions“, 6 Feburary 2009 http://cop.senate.gov/press/releases/release-020609-report.cfm — Excerpt:
The report acknowledges that Treasury may have had valid policy reasons for making these transactions, and that it is possible that the value of the investments may eventually be worth more than the amount Treasury paid—or they may be worth much less. The report does not take a position on whether Treasury pursued the correct strategy, instead focusing on the contrast between the quantitative results of the study and the statements made by Secretary Paulson last year.

Last fall, Treasury sold the American public on the TARP program by claiming that it would help banks while protecting taxpayers. Secretary Paulson described the transactions as ‘at or near par’—that the value the assets Treasury received was roughly equal to the money being spent. But that didn’t happen. Treasury got less than it spent.” said Elizabeth Warren, the Chair of the Oversight Panel. “Treasury should have leveled with the American people about the purpose of the program. It’s time to explain what’s happened so that we can have a good, old-fashioned debate about whether this is the smartest way to spend our money.

 

[mixin]

Re: The Coming Collapse of the Middle Class

From the COP link:

The Panel?s analysis revealed that in the ten largest transactions made with TARP funds, for every $100 spent by Treasury, it received assets worth, on average, only $66. This disparity translates into a $78 billion shortfall for the first $254 billion in TARP funds that were spent.

The report reaches its conclusions by reviewing ten of the largest TARP investments the Treasury made during 2008. The analysis revealed that:

In the eight deals made under the Capital Purchase Program?which is the program designed for so-called healthy banks?Treasury received $78 for every $100 spent.

In the two deals made under the programs designed to provide aid to important financial institutions that pose a higher risk of failure, Treasury spent $100 to get back assets worth only $41.

Using the same valuation techniques to analyze three large transactions made by private investors during the same time period, the report reveals that, unlike Treasury, private investors received securities worth as much or more than they invested.

 

[Amish Country]

Re: The Coming Collapse of the Middle Class

Well! I certainly don't have answers. Thanks for posting the link, it was very informative.

I took away the message that risks and cost have systematically been shifted to the individual middle class family unit - education, health care, retirement. That having children is risky for your financial health, and that many of us can 'make it' if we are lucky: no job loss, no serious illness, and no family break-up through death or divorce.

Childless people without these common misfortunes may be able to save enough and/or take on less debt to provide themselves some financial security.

All I can think of to reverse the trend is to cut your cost of living dramatically and save, save, save. That way there is a cushion if misfortune occurs.

It is interesting to see how the economic dynamics of families have changed in the last 80 to 100 years. In my grandmother's generation children and the elderly were assets not liabilities. Children were unpaid labor on family farms that had not made the jump to unsustainable industrial agribusiness. Children helped out in family business and learned skills, trades and life lessons along the way. They were also an insurance policy for old age. It was expected that one's children would take care of their elders. The elder generation was also seen as an asset, a reservoir of information and skills learned over a lifetime, passing on traditions and education from their own experience and prior generations. They also helped out in the family business, farm and home, as they were able. In my mother's generation children and the elderly were making the transition from assets to liabilities as labor laws were tightened, suburbia spread, technology and modern industry were wiping out trades perfected over generations, energy was cheap, money poured into the US from other countries purchasing products from our healthy industrial manufacturing base that were needed by a war damaged world, old age homes came into being for warehousing the elderly and lifestyles and healthcare expectations changed.

It is going to be interesting to see how long it takes to make the shift back toward the original family dynamic of 100 years ago as families can no longer afford the life style of the anomaly of the last two or three generations. No I do not think that we will magically recreate the America of 1924 or 1955 but I envision something new that is build on our current abilities, experiences, technology and knowledge. How quickly families and institutions adapt to the changing realities may determine how well they survive.

 

[Blue]

Re: The Coming Collapse of the Middle Class

It is going to be interesting to see how long it takes to make the shift back toward the original family dynamic of 100 years ago as families can no longer afford the life style of the anomaly of the last two or three generations. No I do not think that we will magically recreate the America of 1924 or 1955 but I envision something new that is build on our current abilities, experiences, technology and knowledge. How quickly families and institutions adapt to the changing realities may determine how well they survive.

You know, maybe you are right about this. We are seeing more and more families with 2 and 3 generations living under the same roof again.

 

[Farmer]

Re: The Coming Collapse of the Middle Class

"Children helped out in family business and learned skills, trades and life lessons along the way. They were also an insurance policy for old age. It was expected that one's children would take care of their elders. "

Thoughtful observations Amish Country.

I think that you have identified one of the factors stressing families- separation of the generations. Grown children may move far away from their parents in search of employment, yet grandparents provide emotional support to young families and can sometimes help provide childcare in the early years. This lessens the pre-school costs that Elizabeth identified as a new added burden to the middle class.

We are definitely starting to see more children move back into their parents homes as they find they are unable to support themselves independently on entry level wages. It is hard to know how much of this is true need, or a child's desire to maintain a certain quality of life (cell phone, cable TV, etc).

Without a farm or family business to run, is this currently a financial benefit or just another cost for the "sandwich generation"?

 

[Amish Country]

Re: The Coming Collapse of the Middle Class

Children historically have been given much more responsibility at earlier ages than they are today. I think that some of these current attitudes and expectations will also change with the economy. I'm not sure to what degree.

My grandmother was born in 1901 and while the rest of the family had supper she, as a child, would stay in the family's small neighborhood grocery store and wait on any customers that would show up. She was very young and some customers would wait until she was put in charge of the store to come in and make purchases. She was not too good working the scale and gave more than she was supposed to. I've read Horatio Alger books written in the early 1900's that conical (fictitious) boys as young as 14 "making their way in the world" as it was put then.

My grandmother's sons, my uncles, at the age of 5 stood on a small stool to reach the sink to wash dishes and when they were not much older had to stoke the coal furnace on cold mornings before school.

I was expected to help out on our family farm and had a parttime job while in junior high school.

In my area it is not uncommon to see Amish children working besides adults or deftly handling teams of horses disking field soil into fine powder. The Amish in my area do not do insurance as that is viewed as interfering with the will of God. Insurance in some families may become a thing of the past if it starts interfering with the cost of dinner, medication or the mortgage. I could tell from reactions at a Parents Teachers group meeting that I was considered somewhat weird when I mentioned our kids earn spending money doing chores instead of receiving an allowance or us buying them whatever they wanted. It may be easier for families with a history or culture that gives children responsibility and expects elders to be cared for at home to adapt to harder economic times than those who don't.

Also due to the down turn in the economy children that were once destine for a college education may now be headed for trade schools and apprenticeships as advanced education is no longer in the financial reach of many in the now shrinking middle class.

 

[kent nickell]

Re: The Coming Collapse of the Middle Class

http://www.guardian.co.uk/business/2009/apr/05/useconomy-regulators

US watchdog calls for bank executives to be sacked

Elizabeth Warren, chief watchdog of America's $700bn (?472bn) bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse.

Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program (Tarp), is also set to call for shareholders in those institutions to be "wiped out". "It is crucial for these things to happen," she said. "Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade." She declined to give more detail but confirmed that she would refer to insurance group AIG, which has received $173bn in bailout money, and banking giant Citigroup, which has had $45bn in funds and more than $316bn of loan guarantees.

Warren also believes there are "dangers inherent" in the approach taken by treasury secretary Tim Geithner, who she says has offered "open-ended subsidies" to some of the world's biggest financial institutions without adequately weighing potential pitfalls. "We want to ensure that the treasury gives the public an alternative approach," she said, adding that she was worried that banks would not recover while they were being fed subsidies. "When are they going to say, enough?" she said.

She said she did not want to be too hard on Geithner but that he must address the issues in the report. "The very notion that anyone would infuse money into a financially troubled entity without demanding changes in management is preposterous."

The report will also look at how earlier crises were overcome - the Swedish and Japanese problems of the 1990s, the US savings and loan crisis of the 1980s and the 30s Depression. "Three things had to happen," Warren said. "Firstly, the banks must have confidence that the valuation of the troubled assets in question is accurate; then the management of the institutions receiving subsidies from the government must be replaced; and thirdly, the equity investors are always wiped out."

 

[kent nickell]

Re: The Coming Collapse of the Middle Class

Here is a good interview with Elizabeth Warren on her efforts to try and get greater transparency and accountability...

http://www.calculatedriskblog.com/2009/04/tarp-cop-elizabeth-warren-on-april.html

April 8 Warren TARP Oversight Panel Report: "Six months into the existence of TARP, evidence of success or failure is mixed. One key assumption that underlies Treasury?s [PPIP] approach is its belief that the system-wide deleveraging resulting from the decline in asset values, leading to an accompanying drop in net wealth across the country, is in large part the product of temporary liquidity constraints resulting from non-functioning markets for troubled assets. On the other hand, it is possible that Treasury?s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth."