In the Fall of 2005, I pulled into a filling station near my house in Minneapolis. In three months, gas had increased in price by 50 cents per gallon. Everything I saw on the news said the price I was paying that day would soon look like a bargain.
During the hour or so I ran errands, combined profits of our 10 largest energy companies ballooned another $13.5 million. Meanwhile, Congress had just served up another heaping portion of tax breaks to those same corporations.
Across the street from the station, the thrift shop’s large parking lot was filled with cars. Hundreds of people were taking advantage of a sale on used back-to-school clothing. Those of slightly better means flocked to the new Wal-Mart a few blocks away to buy whatever had come in on the most recent boat from China. Surrounding retailers wonder how much longer they can afford to pay union-scale wages now that their low-wage neighbor has opened for business.
I drove back to our house, which originally sold new for around $10,000 and was well within the means of a blue-collar family with one wage earner. By the time my wife and I purchased the house, it was over 45 years old and in need of substantial work. We paid more than 10 times the original price. Five years later, the house can be sold for twice what we paid. A blue-collar family with a single wage earner cannot dream of buying the house now without public assistance and all of the attendant risks.
Through all this, the house has remained what it always has been – a place to live. The additional value is of no use whatsoever to us. Before the mortgage was paid off, the high value was a benefit mostly to the mortgage company, because it meant higher payments to them. We, on the other hand, had less money to spend on other things. Now that the house is almost paid off, we can access its value only by selling it (and sleeping outside in a Minnesota winter?) or by taking on a new mortgage and again relinquishing at least part of our ownership to lenders.
In barely an hour, my trip to the gas station and back home had revealed three parts of a growing economic crisis:
• We are gouged on prices for essential goods and services.
• Our wages are driven down by globalization.
• When we can no longer afford a decent lifestyle, those who have become wealthy at our expense lend us back our money so we can keep spending. We slide deeper into debt.
Not surprisingly, very few of us are benefiting from this scenario. A U.S. Census Bureau report showed that the number of people living in poverty had risen to 37 million in 2004. The ranks of the working poor swelled and the annual earnings of full-time workers had fallen $1,000. Median household income was less than it had been in 1999. There were 700,000 more working people without health insurance than there had been a year earlier; the share of U.S. workers with health insurance was the lowest since 1993.
‘Ownership society’ for whom? In spite of these and many other gloomy figures, we are told not to worry, because the United States is becoming what some politicians call an “ownership society.” What we lack in wages we will make up for by smart investments in real estate and the stock market. Why worry about your falling wages when the value of your house is climbing higher than you ever imagined? Why worry about price-gouging when you own part of the corporation that is setting those high prices?
Most Americans no doubt agree, at least in a general way, on what a successful economy must do. For example, it must provide a sound education for all its citizens. It must provide highways and other essential public services. It must provide police, fire, and military protection of life, property, and liberty. It must be one that is compatible with basic human rights and democratic principles. It must reward hard work and entrepreneurial innovation. It must be one in which everyone can expect at least a modest standard of living and the health care to live life to the fullest.
But it’s getting harder for me to see how our current economic course will get us where we want to be.
• As I write this, the overall personal savings rate in the United States has fallen below zero. Wouldn’t we be better off if people were able to measure their finances by what they had been able to save rather than by what they were able to borrow?
• Meanwhile, we hear repeated calls to be more competitive in world markets. But note that those countries that excel at low-cost production tend to be very poor. Wouldn’t we be better with a goal of having the highest standard of living in the world?
• The solution to more and more economic problems seems to be cutting taxes. Isn’t the better goal to have an economy that provides enough to all citizens so they can afford the taxes necessary for education, public services, and an advanced society?
• We are rapidly developing into a society in which a very few people have a larger share of the nation’s wealth, something we haven’t seen since the Great Crash of 1929. Wouldn’t it be better if more people were comfortably middle class, even if it meant that fewer lived like royalty?
Will our society become more just and prosperous as we rely more on income from ownership and less on income earned by working Americans?
Textbooks don’t match reality. My own views on this question have been shaped by 25 years as a university specialist working directly with farmers. During many of those years, I also taught basic economics to hundreds of college students.
From the farmers I learned the importance of profits, entrepreneurship, and hard work. From the students, I learned that traditional textbooks don’t always match the reality today’s young people face.
The United States has always been a successful economic model for the world. For this to remain true, however, we will have to pay greater attention to restoring and sustaining the middle class. Government must help with this task, but it cannot do it alone. Strong and effective unions are an essential part of any strategy that will restore and maintain the American middle class. To see why, we must understand the economic forces of price gouging, wage cutting, and excessive debt that are weakening the middle class and leading us toward a landlord society that benefits none but the very few.
Richard A. Levins is professor emeritus of applied economics at the University of Minnesota. This is the first in a series of excerpts adapted from his book “Middle Class/Union Made." It is available from Itasca Books at www.itascabooks.com or 1-800-901-3480. Reprinted with permission of the author.