In the summer of 1914, America was an outlier in a world of teetering monarchies, festering colonial empires, and rancid landed aristocracies. While the rest of the world fed its gold and its young to the insatiable maw of industrial war, Americans were building a dream from limitless resources and the economic opportunities of a conflict that left America unspoiled and prosperous. By the close of hostilities in 1945, with the capital of the planet spent and exhausted, America burst from the ruins to begin the greatest run of prosperity and innovation of all time. The American middle class exploded, living the dream so thoughtfully given to them over a generation of global war.
Powerhouse America imposed its vision of a liberal, free market democracy on the "free world" through the Bretton Woods agreement of 1944. The United States became the world's greatest manufacturer of goods, trader of goods, and consumer of goods. Rebuilding the planet became a God given mission, the profits manna from heaven. The American dollar became the world's dollar. Freedom and cash registers rang.
But with the US greenback backed by gold, American economic expansion was limited to the bullion it horded. Wars in Korea and Viet Nam, and the massive expansion of "entitlements" with Social Security and Medicare among others, began to strain the American Dream. By the early 1970s the US had ceased to be an exporter of stuff, and the middle class began to buy increasingly cheaper stuff from abroad - at the expense of their own manufacturing and jobs. Given that the dream of freewheeling consumption was the bedrock of the burgeoning voting middle class, politics insisted on a populist solution to the increasingly broke US economy. In 1971, Richard Nixon elected to abandon Bretton Woods, leave the gold standard, and America was free to print its way out of deficit and keep the dream alive.
At the same time as the US set the world awash in USDs, untold wealth and prosperity inflated its way through the massive baby boomer cohort. Women were entering the workforce in exponential numbers, soaking up inflated dollars with double incomes - and less expensive kids. American politics became a contest of pandering to the hedonistic desires of the American household, boom times embraced and fuelled by lax regulation and credit, busts fought off with the simple printing of even more money. Good times.
The American household saved 11% of its income in 1970, and had only 1.4% of its cash going to newfangled credit cards and auto loans. Everything else exchanged for clothes, appliances, food, houses, and shiny happy stuff, increasingly from overseas. Unknown to all, it was to be the high water mark for the middle class of America.
In 1971, American imports exceeded exports for the first time in modern history, by 2.6 billion dollars. At a time when a billion was a lot, America began paying to simply exist. Gross Public Debt had grown from 43 billion in 1940, to 381 billion by 1970. Within a single generation - the age of narcissism, the computer age, the age of globalization - the baby boomers of the American middle class had tilted the entire planet's resources towards an unsustainable consumer culture. No longer living the dream, those alive just moments before Lehman Brothers listed over, rolled under, and disappeared below the waves of history, were fighting simply to keep the stuff they had.
The future had evaporated right before their shuttered eyes, and for over forty years.
The current version of the American middle class bears no resemblance at all to that of the end of the golden era in 1970. Forty years ago, Americans saved 11% of their earnings - which had evaporated by 2005, reaching the oxymoron of negative savings. Credit card debt shot from 1.4% to 15%. In the space of a generation, a single income family flush with cash, savings, and dreams had become a double income nightmare staggered with debt.
In 2008, there were more household bankruptcies than divorces.
The cost of crap fell and Wal Mart rose. Debt enslaved suburbanites now spend 32% less on clothing than they did a generation ago. 18% less on food, 52% less on appliances, and 24% less on cars. The middle class is consuming as voraciously as it ever has, however they have replaced sturdy $400.00 American Lawn Boy lawn mowers with $99.00 tin cans from China, and buy them now on credit. Some call that progress, others, value. In reality, it's inflation. The simple fact of the matter is Americans no longer have the disposable income to consume their way out of trouble, and that trouble lies in why it is the American middle class is broke, struggling, and increasingly angry.
At the same time that consumables were falling in price, the fixed portions of the American Dream began an exponential increase. Two incomes meant two cars - or three, or four - and despite the fact that cars were cheaper, the cost of cars to the two-income family rose by 52%. Houses got bigger, and mortgages increased 76% - with 10 million of them in various states of distress and foreclosure. Health insurance rose 76%, taxes 25%. Childcare was an expense nobody had a generation ago, but one that became essential with two adults working. The cost of education had increased - as did the length of time necessary to obtain that education. A ticket to the middle class that cost 12 years of school - grade one through high school - now includes daycare, preschool, grade school, high school, and then college. Americans must now pay for the additional time.
In 2005, that .09% of the earth that set the agenda for the planet was spending over 66% of its income on the fixed costs of the American dream alone, where it once spent less than a third. Or, to frame it in a way that defines the great problem, the American system that depends on rabid consumerism has left its heartland with exponentially decreasing amounts of disposable income, falling from 66% to 33% in a single lifetime. When George W Bush implored the middle class to spend its way out of the 9/11 chaos, in stunned and terrified whispers the American middle class muttered, "With what?"
"The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country"- Edward Bernays, 1928
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