08/19/2010

On the Way Down

The Erosion of America's Middle Class
By Thomas Schulz

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.
Wall Street. The banks, moribund until recently, are back to earning billions. Companies nationwide are reporting strong growth, and the stock
market has almost returned to its pre-crisis levels.

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 top.

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 downward.

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 recessions.

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
percent.

In its current annual report, the US Department

An almost deserted street in Detroit. Millions of people are still struggling to
cope with debt and unemployment.
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
nation.

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.

Part 2: 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 €35,570). The same
figure for 2007, adjusted for inflation, was $45,113 (€35,051).

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 already.

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.
 Yet 70 percent of Americans believe the recession is still in full swing. Many tent cities have sprung up for homeless
people who have lost their homes due to the crisis.

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.
 Many automakers, such as General Motors, had to let workers go.

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 Finley.

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."
And many auto dealerships shut down, as millions of Americans stopped spending money on consumer products.

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