Washington Post, July 22, 2008: Moderate and lower earners under more pressure

Posted on

By Joanne Morrison
Tuesday, July 22, 2008; 7:56 PM

WASHINGTON (Reuters) – The trouble that began last summer in the financial markets raised the likelihood of a U.S. recession, but for America’s middle class, the downturn has been under way for many years, experts plan to tell a congressional panel on Wednesday.

Hit with higher gasoline prices, declining home values, rising health-care costs and little or no income growth since 2007, the outlook for those in the middle class and those with even lower incomes is dire.

“In the post-war period, the country grew together. Now we are growing apart,” said Kristen Lewis of the American Human Development Project, in testimony prepared for delivery on Wednesday to the congressional Joint Economic Committee.

A report showing the growing disparity in wealth in the United States was released recently by the American Human Development Project, a nonprofit project whose major backers include Oxfam America and the Rockefeller Foundation.

Citing Census Bureau data, Lewis told the Joint Economic Committee that in 2006, the average annual income in the top quintile of U.S households stood at $168,170 — nearly 15 times the average income of $11,352 a year in the lowest quintile.

The richest 20 percent in the country earned more than half of the nation’s total income.

“The American meritocracy, the foundation of the American Dream, is at risk. Social mobility is now less fluid in the United States than in other affluent nations,” she said.

The top 1 percent of U.S. households possess a third of America’s wealth and the bottom 60 percent only 4.2 percent, according to Lewis.


When categorized by race, the disparities are even more stark.

Federal Reserve data show that in 2004, the median net worth was $140,800 for whites and $24,900 for non-whites, a nearly six-fold difference.

“Minority families have much less to fall back on than white families on average,” Lewis said, cautioning with other members of the panel that debt is on the rise, particularly as home values decline.


Higher gasoline prices, over $4.00 a gallon in many areas, have eaten away at American incomes, most dramatically the middle class. Over the last year, price increases have cost consumers an extra $1,100 a year, according to David Kreutzer, an economist at the Heritage Foundation, a conservative think tank in Washington.

“Price increases have the obvious direct impact on gasoline expenditures. But these direct impacts ripple through the economy and produce additional burdens on households,” Kreutzer said.

Higher gasoline prices squeeze the production side of the economy from both the demand and cost directions, he said, warning that federal policy not inhibit “efficient responses to market shocks.”

His comments come as lawmakers are considering a spate of bills aimed to cut speculation in oil markets, which have been

blamed for higher oil prices. But Bush administration officials and others warn that supply-and-demand issues, not speculation, have been the cause of big increases.

Sen. Charles Schumer, the New York Democrat who chairs the Joint Economic Committee, said the double whammy of surging prices, especially for food and energy, and declining incomes are pushing more Americans into lives of quiet desperation.

“There is a silent cry going out as middle-class families gather around their dinner tables each night to talk about how to pay their ballooning bills,” Schumer said. “Middle-class families are the engine of our economy, but their earning power and economic security have actually declined in the last seven years.”


According to Harvard Professor Elizabeth Warren, incomes — in inflation-adjusted terms — have been declining since 2007. This is particularly clear in the middle- and lower- income groups.

“For many families in America, the recession did not begin in the past six months. The real recession began several years ago,” Warren said.

Measured in inflation-adjusted dollars, incomes declined while basic expenses increased sharply, namely energy, housing and food.

“Families making the same commute are spending on average of $2,195 more for gas than they did in 2000,” she said.

Overall, she estimates that the average family is spending nearly $5,000 more than in 2000 for a handful of basic expenses like food, health care, energy and housing.

“It is no surprise that millions of families have turned to debt to try and bridge the gap between their incomes and their expenses. Debt of every kind has increased sharply,” Warren said.

But yet the issuers of credit cards have profited.

In 2007, all-purpose credit cards generated revenues of $117 billion, up from $115 billion in 2006, Warren said.

At the same time, about 43.5 percent of all households in the United States carry a balance on their credit cards,

“Credit card debt now consumes a sizable portion of a family’s income, leaving families with less to spend elsewhere,” she said. “In effect, a huge wealth transfer is taking place.”

(Reporting By Joanne Morrison; Editing by Jan Paschal)

« Back to News