"The middle class can't regain its self-confidence and financial health without a strong economic recovery," writes Washington Post economics columnist Robert Samuelson. "But the economy can't recover strongly without a financially healthy middle class, which provides most consumer spending. Not surprisingly, the economic expansion is glacial. Household debt is reduced gradually. Wealth is slowly rebuilt through higher saving and stock prices — and the hope that home values will follow."
Those last two sentences need clarification. Household debt is barely being reduced at all. The Department of Commerce's monthly personal savings rate [pdf], which had topped $600 billion in every month during the second half of 2010 and the first quarter of 2011, has not gone above $600 billion in any month since June 2011. The percentage of personal savings (disposable personal income less expenditures) has not been above 5 percent since June 2011. (Our colonial ancestors in the 1980s saved more than 10 percent per month.) A trio of professors says half of retirees die with less than $10,000 worth of personal assets.
And hope does not rebuild wealth any more than faith generates net sales. We can debate whether higher saving or stock prices rebuild wealth: Savings accounts are paying less than one percent interest while inflation has robbed your dollar of ten cents since 2007; and although imaginatively valued stock prices rebuild paper wealth, they vanish like the gambler's lucky streak. But there's no debate on hope: It doesn't rebuild anything.
This gloomy column continues Samuelson's welcome streak of out-of-the-park jeremiads. The historian of the great inflation described the "Withering of the Affluent Society" in a recent Wilson Quarterly thinker:
For millions of younger Americans—say, those 40 and under—living better than their parents is a pipe dream. They won't. The threat to their hopes does not arise from an impending collapse of technological gains of the sort epitomized by the creations of Fulton, Ford, and Gates. These advances will almost certainly continue, and per capita income—the average for all Americans and a conventional indicator of living standards—will climb. Statistically, American progress will resume. The Great Recession will be a bump, not a dead end.
The trouble is that many of these gains will bypass the young. The increases that might have fattened their paychecks will be siphoned off to satisfy other groups and other needs. Today's young workers will have to finance Social Security and Medicare for a rapidly growing cohort of older Americans. Through higher premiums for employer-provided health insurance, they will subsidize care for others. Through higher taxes and fees, they will pay to repair aging infrastructure (roads, bridges, water systems) and to support squeezed public services, from schools to police.
I distinctly remember the mellow of my own generation's youth being harshed by numerous think pieces pronouncing that we would be the first generation in U.S. history not to live as well as our parents. I suspect if I had a time machine I could find newspapers in the 1960s saying the same of the baby boom generation. The first popular use of the term Lost Generation was to describe the World War I-era cohort.
Still, Samuelson's fire and brimstone is needed medicine for so many of my media colleagues who find it hard to put away their belief that a Long Boom created by a Post-Scarcity Economy has ushered in an Age of Abundance that is sustained by debt-driven Purchasing Power.
You'll have to wait for my Reason print column "Rise of the Five-Dollar Pizza" to find out just how well the deep-discount retail sector (stores with "Dollar" in the name) has been doing since the Keynesian death throes began in the early aughts. Much of that growth is coming as Americans from higher income quintiles resort to 99-cent shopping, and not just to pick up the occasional Jesus candle but to purchase the food and supplies they need to survive. A Family Dollar representative told me:
We've certainly benefitted from the economic backdrop, as sales growth has been very strong, among the best in retail. Our value proposition has really resonated in this environment. The primary strength has been in our consumables areas, i.e., food, health, beauty, personal care, and household products and chemicals. Things you need to buy every day to run a household. We've been aggressively increasing our assortment in these areas over the last few years to provide a broader and more complete assortment…
We are working hard to drive consumables sales higher through an increased assortment. We have significantly increased our SKU counts in food and healthy, beauty, and personal care over the last 5 years.
Samuelson concludes his Post column with the good news that Americans remain tougher than they were believed to be:
For now, what's telling is the resilience of middle-class norms. About 11 million homes are "underwater," reports CoreLogic: Their mortgages exceed their values. Still, most owners make monthly payments even though defaulting might be advantageous. Similarly, long-term unemployed workers send out hundreds of resumes despite repeated disappointment.
Elsewhere, celebrated investor Jim Rogers supports public bankruptcy as the way forward: "The solution to too much debt is not more debt… What would make me very excited is if a few people [in the government] went bankrupt…"
Meanwhile, back at The New York Times, Floyd Norris does his part to boost house prices. But Reason commenter John notices that Fannie Mae has less than a quarter of its REO inventory on the market and is unable to sell nearly half of it.