The recent discouraging news on the economy, especially with respect to unemployment, has once again fueled the debate as to the causes of this very slow so-called recovery.
But few focus on the key issue of the declining incomes and purchasing power of middle-class and working-class Americans. Since the 1970s, these vital classes have seen their incomes decline. As their incomes decline, they have to resort to having dual spousal incomes, buying on credit and overusing their credit cards, and using their mortgages as borrowing machines.
However, these strategies are less viable during this Great Recession.
Many dual spousal incomes are being threatened by one spouse losing his or her job; people are not using their credit cards as often and credit card companies have instituted more stringent requirements in the use of credit cards; and, finally, many Americans have either lost their homes or the value of their homes has been lowered so significantly that they can no longer borrow against their mortgages.
At the same time, the disparity of wealth in the country has risen to historic heights where fewer and fewer elite Americans are possessing more and more of the country's wealth, and yet they cannot turn the economy around by their purchasing power since there is even a limit as to how many houses, cars, yachts, etc., that the super wealthy can purchase.
The key to reviving the economy is coming back to a pre-1970s arrangement where middle-class and working-class Americans were earning a greater percentage of the country's wealth and the very wealthy were earning less (but this did not substantially affect their standard of living).
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But since the 1970s, this arrangement, with roots that lie in post-World War II prosperity, has been abandoned as the super wealthy -- through their avarice -- have systematically cut the wages and incomes of middle- and working-class Americans through such things as outsourcing jobs to Third World countries or breaking unions.
But what the ruling economic and political elite don't seem to understand or don't want to understand is that the current and periodic crisis of American capitalism lies in this great disparity of wealth and in the end even they will lose out. The only real solution is to increase by whatever means necessary the income and purchasing power of the middle- and working-classes. When they have the money to consume, new jobs are created and Americans are put back to work.
For more on this, I would recommend to my readers a book by former Secretary of Labor and now University of California-Berkeley professor, Robert Reich, that I recently read and learned much from. It is titled Aftershock: The Next Economy and America's Future.
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