Tuesday, October 7, 2008

Fool's Paradise

Bob Herbert stated the problem quite simply in his NYT column today:

We’ve been living for years in a fool’s paradise atop a mountain of debt. The masters of the universe on Wall Street lost all sense of reason, no doubt. But most of us have been living above our means through the magic of easy credit, ever lower taxes, ever rising property values, stock market bubbles and the gift of denial, which we used to assure ourselves that the bills would never come due. We’ve even put our wars on a credit card.

The burden of debt for a typical middle-income family, earning about $45,000 a year, grew by a third in just the few years from 2001 to 2004, according to the Center for American Progress. The reason for this unsustainable added weight was the rising cost of such items as housing, higher education, health care and transportation at a time when wages grew only slightly or not at all.
Herbert is right. We have been living in a 'fool's paradise,' experiencing what is essentially a false prosperity. (That was always my beef with the Clintons, because it seemed to me that the 90's prosperity was more illusion than reality and couldn't be sustained.) That was bound to come to an end, or better yet, a 'screeching halt'. Like a car with brakes locked, heading for a wall, we are now listening to the awful sound of rubber being dragged against the pavement, and we're waiting for the crunch of collision, holding our breath.

When the collision finally occurs, I don't think there can be much doubt that the average person is going to experience the 'crunch' as a shrinking of their standard of living in the years to come. That will mean less travel, fewer consumer goods, more expensive food, fewer new cars, more expensive gasoline, less eating out, less credit for everything.  Add to that the rising health care costs, the uncertainty of providing for national defense, and the possibility of rising unemployment where people's incomes shrink in half or to nothing, you have a very unhappy situation with some folks in very desperate situations.

Unfortunately, there are no easy solutions to this situation. Indeed, it will be difficult to just keep the economy functioning in any kind of normal way, let alone resolve the larger issues we face. It will be good to get this election over, so that at least will be resolved and whoever wins can begin to work on a strategy for our future as a nation.

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