August 2010, Week 4


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Mon, 23 Aug 2010 21:21:24 -0400
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On the Way Down The Erosion of America's Middle Class

By Thomas Schulz

Spiegel [Germany]

While America's super-rich congratulate themselves on
donating billions to charity, the rest of the country
is worse off than ever. Long-term unemployment is
rising and millions of Americans are struggling to
survive. The gap between rich and poor is wider than
ever and the middle class is disappearing.

Ventura is a small city on the Pacific coast, about an
hour's drive north of Los Angeles. Luxury homes with a
view of the ocean dot the hillsides, and the beaches
are popular with surfers. Ventura is storybook
California. "It's a well-off place," says Captain
William Finley. "But about 20 percent of the city is
what we call at risk of homelessness." Finley heads the
local branch of the Salvation Army.

Last summer Ventura launched a pilot program, managed
by Finley, that allows people to sleep in their cars
within city limits. This is normally illegal, both in
Ventura and in the rest of the country, where local
officials and residents are worried about seeing
run-down vans full of Mexican migrant workers parked on
residential streets.

But sometime at the beginning of last year, people in
Ventura realized that the cars parked in front of their
driveways at night weren't old wrecks, but well-tended
station wagons and hatchbacks. And the people sleeping
in them weren't fruit pickers or the homeless, but
their former neighbors.

Finley also noticed a change. Suddenly twice as many
people were taking advantage of his social service
organization's free meals program, and some were even
driving up in BMWs -- apparently reluctant to give up
the expensive cars that reminded them of better times.

Finley calls them "the new poor." "That is a different
category of people that I think we're seeing," he says.
"They are people who never in their wildest
imaginations thought they would be homeless." They're
people who had enough money -- a lot of money, in some
cases -- until recently.

"The image of what is a poor person in today's day and
age doesn't fly. When I was growing up a poor person,
and we grew up fairly poor, you drove a 10-year-old car
that probably had some dents in it. You know, there was
one car for the family and you lived out of the food
bank," says Finley. "In the past, you got yourself out
of poverty and were on your way up."

American Way Heads in Opposite Direction

It was the American way, a path taken by millions.
"Today the image is you're getting newer late model
cars that at one point cost somebody 40, 50 grand, and
they're at wits end, now they're living out of the food
banks. And for many of them it takes a lot to swallow
their pride," says Finley.

Today the American way is often headed in the opposite
direction: downward.

For a while, America seemed to have emerged relatively
unscathed from the worst economic crisis in decades --
with renewed vigor and energy -- just as it had done in
the wake of past crises.

The government was announcing new economic growth
figures by as early as last fall, much earlier than
expected. The banks, moribund until recently, were back
to earning billions. Companies nationwide are reporting
strong growth, and the stock market has almost returned
to it pre-crisis levels. Even the number of
billionaires grew by a healthy 17 percent in 2009.

Two weeks ago, Microsoft founder Bill Gates and 40
other billionaires pledged to donate at least half of
their fortunes to philanthropy, either while still
alive or after death. Is America a country so blessed
with affluence that it can afford to give away
billions, just like that?

Growing Resentment

Gates' move could also be interpreted as a PR campaign,
in a country where the super-rich sense that although
they are profiting from the crisis, as was to be
expected, the number of people adversely affected has
grown enormously. They also sense that there is growing
resentment in American society against those at the

For people in the lower income brackets, the recovery
already seems to be falling apart. Experts fear that
the US economy could remain weak for many years to
come. And despite the many government assistance
programs, the small amount of hope they engender has
yet to be felt by the general public. On the contrary,
for many people things are still headed dramatically

According to a recent opinion poll, 70 percent of
Americans believe that the recession is still in full
swing. And this time it isn't just the poor who are
especially hard-hit, as they usually are during

This time the recession is also affecting well-educated
people who had been earning a good living until now.
These people, who see themselves as solidly
middle-class, now feel more threatened than ever before
in the country's history. Four out of 10 Americans who
consider themselves part of this class believe that
they will be unable to maintain their social status.

Unemployment Persists

In a recent cover story titled "So long, middle class,"
the New York Post presented its readers with "25
statistics that prove that the middle class is being
systematically wiped out of existence in America." Last
week, the leading online columnist Arianna Huffington
issued the almost apocalyptic warning that "America is
in danger of becoming a Third World country."

In fact, the United States, in the wake of a real
estate, financial economic and now debt crisis, which
it still hasn't overcome, is threatened by a social Ice
Age more severe than anything the country has seen
since the Great Depression.

The United States is experiencing the problem of
long-term unemployment for the first time since World
War II. The number of the long-term unemployed is
already three times as high as it was during any crisis
in the past, and it is still rising.

More than a year after the official end of the
recession, the overall unemployment rate remains
consistently above 9.5 percent. But this is just the
official figure. When adjusted to include the people
who have already given up looking for work or are
barely surviving on the few hundred dollars they earn
with a part-time job and are using up their savings,
the real unemployment figure jumps to more than 17

In its current annual report, the US Department of
Agriculture notes that "food insecurity" is on the
rise, and that 50 million Americans couldn't afford to
buy enough food to stay healthy at some point last
year. One in eight American adults and one in four
children now survive on government food stamps. These
are unbelievable numbers for the world's richest

Even more unsettling is the fact that America, which
has always been characterized by its unshakable belief
in the American Dream, and in the conviction that
anyone, even those at the very bottom, can rise to the
top, is beginning to lose its famous optimism.
According to recent figures, a significant minority of
US citizens now believe that their children will be
worse off than they are.

Many Americans are beginning to realize that for them,
the American Dream has been more of a nightmare of
late. They face a bitter reality of fewer and fewer
jobs, decades of stagnating wages and dramatic
increases in inequality. Only in recent months, as the
economy has grown but jobs have not returned, as
profits have returned but poverty figures have risen by
the week, the country seems to have recognized that it
is struggling with a deep-seated, structural crisis
that has been building for years. As the Washington
Post writes, the financial crisis was merely the final
turning -- for the worse.

Where Did All the Money Go?

The boom in stocks and real estate, the country's wild
borrowing spree and its excessive consumer spending
have long masked the fact that the overwhelming
majority of Americans derived almost no benefit from 30
years of economic growth. In 1978, the average per
capita income for men in the United States was $45,879
(about O35,570). The same figure for 2007, adjusted for
inflation, was $45,113 (O35,051).

Where did all the money go? All the enormous market
gains and corporate earnings, the profits from the boom
in the financial markets and the 110-percent increase
in the gross national product in the last 30 years? It
went to those who had always had more than enough

While 90 percent of Americans have seen only modest
gains in their incomes since 1973, incomes have almost
tripled for people at the upper end of the scale. In
1979, one third of the profits the country produced
went to the richest 1 percent of American society.
Today it's almost 60 percent. In 1950, the average
corporate CEO earned 30 times as much as an ordinary
worker. Today it's 300 times as much. And today 1
percent of Americans own 37 percent of the total
national wealth.

Income inequality in the United States is greater today
than it has been since the 1920s, except that hardly
anyone has minded until now.

Little Chance of the American Dream

In America, the free market is king, and people with
low incomes are seen as having only themselves to
blame. Those who make a lot of money are applauded --
and emulated. The only problem is that Americans have
long overlooked the fact that the American Dream was
becoming a reality for fewer and fewer people.

Statistically, less affluent Americans stand a
4-percent chance of becoming part of the upper middle
class -- a number that is lower than in almost every
other industrialized nation.

So far, politicians have failed to come up with
solutions for the growing social crisis. Washington is
still waiting for jobs that aren't coming. President
Barack Obama and his administration seem to be pinning
their hopes on the notion that Americans will
eventually pull themselves up by their bootstraps --
preferably by doing the same thing they've always done:
spending money. Domestic consumer spending is
responsible for two-thirds of American economic output.

But even though Federal Reserve Chairman Ben Bernanke
continues to pump money into the market, and even
though the government deficit has now reached the
dizzying level of $1.4 trillion, such efforts have
remained unsuccessful.

"The lights are going out all over America," Nobel
economics laureate Paul Krugman wrote last week, and
described communities that couldn't even afford to
maintain their streets anymore.

The problem is that many Americans can no longer spend
money on consumer products, because they have no
savings. In some cases, their houses have lost half of
their value. They no longer qualify for low-interest
loans. They are making less money than before or
they're unemployed. This in turn reduces or eliminates
their ability to pay taxes.

Turning Out the Lights

As a result, many state and local governments are faced
with enormous budget deficits. In Hawaii, for example,
schools are closed on some Fridays to save the state
money. A county in Georgia has eliminated all public
bus services. Colorado Springs, a city of 380,000
people, has shut off a third of its streetlights to
save electricity.

There are many discrepancies in America in the wake of
the financial crisis. On the one hand, the Fed is
constantly printing fresh money, and the government
spent $182 billion to bail out a single company, the
insurance giant AIG. On the other hand, the lights are
in fact going out in some areas, because Washington,
citing the need to reduce spending, is unwilling to
provide local governments with financial assistance.
"America is now on the unlit, unpaved road to nowhere,"
economist Krugman warns.

Chanelle Sabedra is already on that road. She and her
husband have been sleeping in their car for almost
three weeks now. "We never saw this coming, never
ever," says Sabedra. She starts to cry. "I'm an adult,
I can take care of myself one way or another, and same
with my husband, but (my kids are) too little to go
through these things." She has three children; they are
nine, five and three years old.

"We had a house further south, in San Bernardino," says
Sabedra. Her husband lost his job building prefab
houses in July 2009. The utility company turned off the
gas. "We were boiling water on the barbeque to bathe
our kids," she says. No longer able to pay the rent,
the Sabedras were evicted from their house in August.

Friends and relatives had few resources to help them.
Now they live in a room at the Salvation Army homeless
shelter in downtown Ventura, which is run by Captain

The sudden plunge into homelessness is a reality that's
difficult to understand, given the images of America we
are accustomed to seeing in television series and
films. They always depict homes with well-kept yards
and two-car garages with basketball hoops attached to
them. This America still exists, but it's shrinking.
And often those who are managing to keep the illusion
alive can hardly afford to do so.

Americans have been struggling with a rising cost of
living for the past 20 years. At the beginning of the
decade, families were already paying twice as much for
health insurance and their mortgages than the previous
generation did.

"To cope, millions of families put a second parent into
the workforce," says Harvard Professor Elizabeth
Warren, who President Obama appointed to chair the
congressional panel to oversee the government's bank
bailout program. According to Warren, the average
family has spent all of its income and used up its
savings "just to stay afloat a little while longer."

Spiraling Debt

Because they lacked savings, Americans began borrowing
money to cover all of their other expenses, including
education, healthcare and consumption. American
consumer debt now totals about $13.5 trillion.

Many people threaten to suffocate under the burden of
their debt. Some 61 percent of Americans have no
financial reserves and are living from paycheck to
paycheck. As little as a single hospital bill can spell
potential financial ruin.

Chanelle Sabedra's husband has found another job, this
time as a warehouse worker for a company that makes
aircraft turbines. But he doesn't earn enough to get
the family out of the homeless shelter. "I haven't got
a new job yet," says Sabedra. Her husband's job doesn't
pay enough, and the couple has now joined the growing
ranks of the working poor, for whom even two low-wage
jobs are insufficient to feed their families. "We need
the second income," says Sabedra. "Just the baby alone
is $600 a month for half-day care."

In pre-recession America, she and her husband would
have had two jobs each to make ends meet. They would
have worked at the cash register at Wal-Mart during the
day, flipped burgers at McDonald's in the early evening
and perhaps spent half the night working as a security
guard or cleaning buildings. These are all low-paying
jobs, hardly careers, but the combined income is
usually enough to keep a family afloat. In
pre-recession America, life wasn't luxurious for
Chanelle Sabedra, but it was doable if they were
willing to work hard enough and sacrifice enough of
their lives to stay afloat.

What kind of a job is she looking for now? "Anything
right now. Mostly I'm looking for retail, or just
anything to get me started, but there's just nothing
out there," says Sabedra.

Translated from the German by Christopher Sultan



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