Americans obsessed over personal finance during the last forty years as never before. So how come so many of us wound up broke? Here's the little-known story.
And along with the payday lenders came new, more vicious species of loan sharks: subprime credit card issuers, auto title lenders, private student loan companies charging up to 20 percent APR, check-cashing outlets, and subprime mortgage brokers and lenders. Just the hidden fees—what Devin Fergus of Hunter College-CUNY calls the “trick and trap fees”—on student loans, mortgages, and credit cards sucked billions of dollars a year off the balance sheets of American families.
Meanwhile, of course, expanding mortgage credit, combined with continued generous tax subsidies for those who borrowed to buy a home, drove up home prices beyond all reason, while causing millions of Americans to overinvest in real estate as the bubble grew. And then, catastrophe.
It was a perfect storm. One that today leaves 69 percent of Americans saying it’s harder for them to achieve the American Dream than it was for their parents, and a full 73 percent saying it will be harder yet for their children and grandchildren. One that, according to a slew of new studies, now makes it harder to climb the socioeconomic ladder in the U.S. than in many parts of supposedly class-bound Europe. One in which about a third of all children born into the middle class in the 1960s and ’70s have fallen out of it. One that has seen the net wealth of Latino households fall by 52 percent between 2007 and 2009, and that of African American households by 30 percent. One in which the typical American family is now so deeply in debt and bereft of assets that they could only survive a month or two without a paycheck or some form of government assistance.
What are we going to do about it?
It’s tempting to ask why we can’t just go back to the “golden era” before the 1970s. And when it comes to the regulation of financial institutions, we should, indeed, do that.
But if you have any idea how to restore us to another era of long-term, salaried employment with traditional pensions and health care benefits, please write a letter to the editor of this magazine, now. And don’t forget to explain how these pensions and employer-based benefits would serve the interests of those of us who must jump from job to job, who are trying to start a new business or work part-time as we raise families or care for an aging relative.
Certainly there are things we could do that would help to get wages moving up again and make jobs more secure at least for a while. We could close the door to immigrants, if you want to go there. We could impose high tariffs on imports. We could make it easier for workers to unionize. And, to be sure, we could find ways to “bend the cost curve” on health care, to make higher education more cost-effective, and maybe even, with enough R&D, come up with huge supplies of cheap, green energy. We could also put taxes on high-income Americans back to where they were during the Clinton administration. We could even raise the income tax rate on the top 1 percent to 100 percent—which would raise enough money to pay for Medicare for roughly three years.
But in the end, none of that helps much if Americans still can’t avoid predatory debt and save securely for life’s predictable expenses and necessary investments. Americans need to be able to finance periods of unemployment or retraining. And above all they need to finance that prolonged period most of us will experience when we become too worn out and frail to find or hold down a job in the economy of the twenty-first century. We have come through a long era in which “prosperity” was financed, in effect, by depleting the net wealth of the average American. Getting back to real prosperity requires not just more jobs, but also fundamental reforms that will help more Americans hold on to more of their income and rebuild their wealth.
[Return to The Future of Success in America]
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