From 2000 through 2009, the Census Bureau found, the median income (measured in inflation-adjusted dollars) declined by 5 percent for white families, 8 percent for Hispanic families, and more than 11 percent for African-American families. That’s almost unimaginable over an entire decade. From 1991 through 2000 (again in inflation-adjusted dollars) it had risen by 13 percent for whites, 19 percent for Hispanics, and 28 percent for African-Americans.
Similarly, the total number of Americans in poverty increased by nearly 12 million in the last decade, more than obliterating the 4.1 million reduction during the 1990s. Especially troubling is that the number of poor children jumped by 3.9 million — again, more than erasing the 2.8 million decline during the 1990s.
Now let’s look at this chart of personal debt from 1948 to more or less now, from here:
Note the major run-up in the debt from around 1994 to 2002, just after 9/11. Most of that was in “non-revolving debt,” and that’s mostly real estate related debt. It’s not a hard conclusion that we basically achieved prosperity by borrowing.
“Mr. Consumer” has been the driving engine of this economy for a long time. When he or she is maxed out in their borrowing capacity, the fun stops. The consumer debt was flat this past decade, which was reflected in the economy’s performance. The government has tried to take up the slack with its own borrowing, and that process has accelerated from Bush to Obama. But the government is a less efficient driver of the economy than our debt-obsessed consumers.
Even with the relatively lax bankruptcy laws we have in the US, people can know when they’ve reached their limit. Through dollar hegemony and other forms of alchemy, our government can more easily conceal its own long-term profligacy. I do not think this process can proceed indefinitely.
I also think that the easily ability to borrow funds–both public and consumer–has injected a hopeless sense of unreality into our population and its expectations. That even reaches in to the church; the perennial popularity of prosperity teaching may be driven by the availability of easy credit. The current crash is correcting that, but it’s going to be a long time before sanity is restored.