How the Hell Do You Get Out of Debt If You're Not a CEO Raking in Millions?
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When that trend started, household debt represented about 45 percent of our economic output. By 2006, it had reached 100 percent. In the mid-1970s, we managed to put away about 10 percent of what we earned for a rainy day; by the time the crash hit in 2008, our savings rate was close to zero – we were spending money even though our incomes weren't rising, and we pulled that feat off by running up piles of debt rather than squirreling away a few acorns for when we might need it.
And it's important to understand that it is this overhang of personal debt, rather than the public debt over which Washington is obsessing, that is really dragging down the economy. It's an economy that's built largely on consumer spending after all, and American consumers don't have any spare cash to spend; real personal consumption was relatively flat at the beginning of the year, but has declined over the past two months.
Although income inequality has been on the rise in many countries in recent years, nowhere has the trend been longer or more severe than in the United States. With middle-class wages continuing to rise, the citizens of many developed countries were able to continue to save money and this left them in far better shape when the crash hit. Consider a few wealthy countries' savings rates alongside our own (courtesy of Seeking Alpha), and note how far behind we were as the 1990s got underway:
All of this tells us that growing inequality isn't just a moral issue or a matter of people being “envious” of the rich, as many within our elites would have you believe, but is a severe drag on economic growth. As economist Jared Bernstein, considering why Sweden has fared better than we have since the crash, put it, “When most of the growth ends up in the top few percentiles of the income or wealth scale, Nordstrom does well at one end of the barbell economy and Walmart prospers at the other end. But there’s a gap in consumption, investment and demand in general in the broad middle. And this dynamic could make it tougher for a recovery to take hold among the broad American middle class.”
Joshua Holland is an editor and senior writer at AlterNet. He is the author of The 15 Biggest Lies About the Economy: And Everything else the Right Doesn't Want You to Know About Taxes, Jobs and Corporate America . Drop him an email or follow him on Twitter .