I've been meaning to post this for a while, but I never seemed to get around to it. Then I read blog posts today, one by Jon Taplin, and one by Paul Krugman, both dealing with the economic history of this country and what our economic future might hold.
In response to Krugman's post, I commented:
All our growth in the last eight years was in the financial industry and the growth it produced through home sales, home refinancing, and increased debt, made possible through aggresive deregulation, which is where Bush’s hand comes in. Meanwhile, every other meaningful employment measure has been stagnant or in decline. Inflation was kept in check not by the Fed’s monetary policies, but by handing over our production capacity to China and our retail capacity to Wal Mart.
We never actually recovered from the first Bush recession. It was a series of false recoveries, fueled by bubbles and by borrowing against future returns which will never materialize. It was good while it lasted, for a few people, anyway. By first Bush recession, I mean the recession of the first Bush, not the first recession of the current Bush.
If you’re wondering where the rest of Obama’s recovery will come from, I think they are hoping for a new bubble - maybe a green tech bubble. Because the fundamentals of our economy are unsustainable, and we have lost the ability to grow without bubbles. Our entire economy is a Ponzi scheme.
Taplin's post, taken from a speech he gave in October of last year, in many ways reinforces what I said. He even points to green technology as a possible hope for the future economic recovery. In my comment, I called it a green tech bubble - maybe that's a bit unfair, as it is more likely that green technology of the very near future promises to completely rewrite not just how we get our energy, but how our entire economy is based. Currently, our economy is limited and driven by energy, but the future looks bright for energy that is either free or almost-free. And that will have repurcussions to our economy far larger than the current crisis. It literally will reinvent the world and how we live in it.
But what I want to do today is make a comparison between me and my father. I am 42 years old, married, with a house, two cars, and two children. At 42 years of age, my father was married, had a house, two cars, and two children.
Coincidentally, at 42 years of age in the year 2009, I am earning almost exactly what my father was earning in 1983, and my wife is earning almost exactly what my mother was earning the same year.
But that is where the similarities end. If you look at our financial obligations, the differences are stark. His house note was less than a third of my house note, for the same sized house in the same neighborhood (I live less than 2 miles from where I grew up). Needless to say, property taxes and home insurance was significantly cheaper then. In 1981, he bought a new car for a little over $6,000. In 2003, my new car cost $17,000. His health insurance was free, with no copayments or coinsurance. His grocery bill was laughably cheap compared to mine. His employer paid into a pension fund and provided stock options and discounts (mine doesn't even match on 401K). He was paying for private school for one child (me), but I am paying for daycare for one child and my daycare costs far exceed his private school costs of 1983.
He retired at 55 with a comfortable nest egg, his house paid for, and his biggest expenses being his property tax, his utitlity bill, and his hobbies. My house will not be paid for until I am 72 years old, before which I will be force to retire and live off what I have managed to save, which, to this date, is barely enough to support my family for six months.
This, I think, is what has become of the American dream for a good part of my generation - to be worse off financially than our parents at the same age, have started our families later for economic reasons, because we started our debt burden earlier and grew it more quickly than our parents, because of college costs and health care costs and the generally much higher (as a percentage of income) costs for everything. Unfortunately, we are also moving in the position of being the backbone of the American consumer economy, and it's showing. The past twenty years of relative economic prosperity have been driven by the buying power (and crass consumerism) of the Baby Boom generation. They have now seen their retirement funds decimated, and we, the children of the first Boomer and pre-boomers, don't have the resources to take up the slack.
My only hope today is that energy innovations are on the near horizon that will make many of these arguments moot.