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United States of financial insecurity

from David Ruccio

The United States is becoming a nation of increasing financial insecurity.

According to a new survey by the Consumer Federation of America (pdf), more Americans find themselves living paycheck to paycheck, forced to reevaluate their expectations for retirement, and falling further behind in terms of their retirement savings.

Clearly, in the midst of the Second Great Depression, more and more Americans are being forced to walk a financial tightrope.

  1. July 29, 2012 at 4:56 pm

    First, I think the consumer federation deserves a great deal of credit for including in the report a lot of details on how the survey was carried out, and raw data, although its’ not clear if hte data is really raw of weighted.
    i think the poster is remiss in not noting that this survey seems designed to help push financial planning.
    third, there are bright spots; people are deducing credit card debt, and remarkably (question #39b, page53) almost no one reports an onerous level of college debt.

  2. Frank D. Tardif
    August 1, 2012 at 6:13 pm

    Actually, Mr. Ruccio, there are suveys, very good, reliable ones, going back to the early part of the last decade that mimic the data you suggest is a post-crisis phenomena. These charts are just the latest versions of similar data that existed for a decade, but was less newsworthy.

    As early as 2005 (I’ll have to go back to my files) a consortium of financial planner organizations, insurance companies and financial institutions found that some 30% of the families, not individuals, families, in the U.S. considered themselves in ‘financial distress”.
    Another point to consider is that those who felt ok about their retirement savings/investments are now 15 years older, with plenty of time in between to discover how hard it has been to actually make money in the 21st century. So of course those people would feel less secure about their retirement savings, as most people do. There is no state-or-municipal sponsored pension that is not underfunded and at risk. The assumed growth in the value of one’s house, the single largest investment for the middle class (see the fed’s paper on the latest survey of consumer finances, the average family is no better off than 1992), is now not just a myth, but a nightmare. People do not have “careers” anymore, they have “jobs”.

    The most consistent issue for virtually all those not in the top 2% or so is that “Knightian Risk” now applies to virtually every financial aspect of most U.S. citizen’s lives. The “unknown unknowns” are the dominant issue in the decision models of most consumers. The implications are obvious.

    Buy a house? For decades, it was the predictability of one’s working income that supported the decision to buy. (until the sub-prime jockey’s started convincing anyone still breathing that rising prices made it ok to buy that Rolls-Royce of a house with a teaser rate). Robert Schiller thinks it’s a 20 year downturn. That’s no cyle, eventually, that manifests as homes being bulldozed for lack of viable owners. Schiller knows more about U.S. housing markets than almost any home buyer. By the zip code, no less.

    The average useful life of a college education is someting like 18 months, after that, it’s a credential, but not a meal ticket, except in certain very specific sciences. In 1983, one professor told me the “entry level degree” into the biz world had become the MBA. He was right, and “credential inflation” can be found throughout the biz world.

    The point is that “uncertainty” has become a central feature to almost every important decision. The company that makes Apple computers in China plans to buy 30,000 robots over three years. Those folks sweating in the Foxconn factories today have no more job security than a Detroit auto worker did 10 years ago.

    The crisis of 2008-2009 was just the tipping point in a 20+ year downtrend for income, job security, net worth, and potential lifetime earnings growth for those who would normally be considered “middle class”. Elizabeth Warrent, in “The Two-Income Trap”, documents the growth in family income from the early ’80s on was the result of both adults being wage earners. One result is that they bid up the price of housing in the better school districts, looking for the better life for their children that an integral part of every American parent’s hope for their children. Unfortunately, having a child increases the probability of divorce by a factor of 3, leaving far too many single mothers, and too many households not gaining the benefits of shared housing costs.

    What most people do not understand, and economists never discuss, is that at the end of WWII, Americans held $187 Billion in War Bonds. Essentially deferred consumption accumulated as a result of wartime rationing limiting the availability of consumer goods of every kind. The total GDP in 1947 was about the same amount. This was not retirement money, college money, this was essentially forced savings. The bonds sold from 1941-1945 matured over the next ten years, fueling what Americans wistfully refer to as the “golden age of capitalism” (lets not discuss the pollutions, racism, sexism, etc of the era). $187 Billion in savings in 1946 was the equivalent of one full year’s GDP today, except in cash-equivalent savings. Think about the situation today if consumers had a year’s GDP sitting in their bank accounts, or in safe bonds maturing over the next several years. It’s unimaginable really. WWII was the last war that was actually paid for at the time (meaning no “guns and butter” simultaneously). Economists as eminent as Koo, Krugman, and others, recognize that the only thing that ended the Great Depression was wartime spending, starting years before the war in our support of Great Britain. None of them seem to recognize that the enormous amount of savings held by Americans, and the post-war Federal spending on the reconstruction of Europe and Japan had more to do with the economic growth during the post-war quarter century than any magic of “free markets”

    This is not an argument against or for any particular economic system, it’s just an insignificant reality check on some part of the history that brought the U.S. to the point illustrated in the graphs in your post.

  3. robert r locke
    August 2, 2012 at 4:20 am

    “This is not an argument against or for any particular economic system, it’s just an insignificant reality check on some part of the history that brought the U.S. to the point illustrated in the graphs in your post.”

    I appreciate the statistics, but we knew all this, most of us who have been paying attentiion over the decades. It is policies within the system of capitalism, not historical statistics, that we mostly needed now. Duriing WWII wages increased significantly, consumption was delayed, hence the tremendous savhgs that fueled postwar expannion. So do you advocate a policy of wage expansion through redistribution of wealth or what?. The crisis does not seem to be in the economy but in the leadership classes of America, especially in the social scienttists with the economists leading the pact. The adverage person cannot solve the problems and is quite ready to rely on the economic experts. But from the experts we get mixed signals and confusion, little help. To have spend the past century building up the social sciences in higher education, with so much cluelessness as a result is scandalous. We need the visible hand of leadership expressed effectively through bureaucratic institutions; but the blog is silent about that.. We need government not the politics of cherry picked statistics and silly ideology..

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