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Sunday, September 19, 2010

Middle class running as fast as it can

Another day older and deeper in debt

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) — This recession has strangled the American middle class, but it was in a weakened state long before anyone heard of subprime mortgages.

The great middle of American society has been falling for 30 years or more, a product of vast economic, social and political forces, both foreign and domestic. It won’t be restored with one congressional election, or even a presidential one. Its troubles are much more serious than that.

The Census Bureau reported this week that the inflation-adjusted median household income had fallen 0.7% in 2009 to the lowest level since 1997. The typical household earned just under $50,000 a year.The typical family is making less than it did 10 years ago.

The Great Recession has taken away the small gains made during the 1980s and 1990s and ripped open wounds that were festering for 30, 35, or 40 years. The middle class is more anxious now than at any time in generations. The worries aren’t new; they are just on another level.

After a great leap forward in the three decades after World War II, the typical American family has barely improved its financial status in the three decades since the 1970s. Any increase in income has been largely due to working longer hours, including sending Mom out into the world to earn a paycheck.

Unfortunately, that paycheck is getting smaller. The average weekly pay, adjusted for inflation, has dropped 13% since peaking in 1973.

In this new world, as Alice found, “It takes all the running you can do, to keep in the same place.”

In the mid-1970s, the average working family could afford to own a house and a car. It could pay for a visit to the doctor and for college for the kids.

Today, even with both spouses working, it’s harder to afford the necessities.

The decline of the middle class was slow and relentless, even during the good times. The U.S. economy hollowed out. More and more of our manufacturing output went overseas, and the domestic economy became more dependent on consumer spending and fancy financial footwork. Good-paying jobs disappeared. So did pensions. Fewer companies offered health insurance benefits, and college tuition climbed out of reach.

To maintain their consumption and to keep up with the Joneses, the middle class made an unholy pact and borrowed against an uncertain future. And now the devil wants his due.

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