American Dream Unraveling
Today's America is no longer the land of economic optimism it was before the turn of the century. Most Americans feel that the American Dream has unraveled, and "their once steady march toward affluence has derailed." A new USA Today poll finds that 54 percent of those surveyed say "their standard of living is no better today than five years ago," while a recent CNN/Opinion Research poll showed that 78 percent of respondents believe the current state of the nation's economy is poor or very poor. Nineteen percent think the economy is somewhat good, a mere 3 percent say it is very good, and only 46 percent of respondents expect conditions to be somewhat good at this time next year. The Bush administration's economic stimulus package, meant to bolster consumer spending and kick start growth, has instead thus far been used by many Americans to pay off bills and debt, while small businesses and Wall Street are continuing to feel the strain from the weak dollar and inflationary trends.
CONSERVATIVE RESPONSE: President Bush and his key advisers appear to be living in a different America than the rest of us -- an America that is not plagued by stagnant wages, a credit crunch, and crises in both the housing market and the grocery store. Bush's view is that our economy is still "continuing to grow in the face of unprecedented challenges" because it is "large and it's open and flexible." Treasury Secretary Henry Paulson argued that "we are on the right path to resolving market disruptions." But it is the administration's assertion that the economy is improving, even as gas prices skyrocket and consumer spending plummets, remains the most out of touch. White House Press Secretary Dana Perino offered that America's economy has time to sit around waiting for things improve: "We would ask the Congress to act on the things we think would have an impact -- not necessarily an immediate impact, but an impact, nonetheless, so that the future of our economy can continue to grow."
MAIN STREET'S PAIN: The White House seems blind to the realities of Main Street. Middle-class America is experiencing the faltering health of the American economy as costs of health care, housing, transportation, and childcare have been steadily rising above the rate of inflation. From a long-term perspective, public and private investment have remained at consistently low levels, yielding deflated confidence about the future of economic growth. With gas topping $4.00 per gallon, some Americans are spending more than 16 percent of their income on fuel. Soaring costs of food are pushing up grocery bills, prepared meals, school lunches, and even pet food. Over the past year, food prices have increased by 5 percent nationally, the highest annual increase in 20 years. The Labor Department reports that egg prices are up more than 30 percent, dairy prices have jumped 12 percent, and the price of baked goods has risen 9 percent. "The question now is the rate of the increase," says the USDA's Economic Research Service. The housing market is faring no better. With one out of 11 homes facing loan payment problems, "the economy is treading water, and the housing market is one of the undercurrents trying to pull it down," noted Stuart Hoffman, chief economist at PNC Financial Services Group. In the job market, "[t]he economy is now literally at stall speed." Over three million Americans are currently receiving unemployment benefits, and some who have managed to keep their jobs have taken paycuts on average of 10-15 percent. "I believe that we are already in a recession," said billionaire Warren Buffett. "Perhaps not in the sense as defined by economists. ... But people are already feeling the effects of a recession."
WALL STREET'S WORRIES: The Federal Reserve has voiced concern that problems on Wall Street may be getting deeper. Boston Federal Reserve President Eric Rosengren said yesterday that "there was no sign that wage costs were rising to meet higher food and gasoline prices." Dallas Federal Reserve President Richard Fisher worried that the weak U.S. dollar might create a "negative feedback loop" by cutting into growth and raising prices. "I think the inflationary impulses we have are beginning to dampen economic activity," he said. Donald Koln, the Federal Reserve Vice Chair, spelled out the problem's complexity: "Over the coming months, we expect banking institutions to continue to face deteriorating loan quality. House prices are still declining sharply in many localities and losses related to residential real estate -- including loans to builders and developers -- are bound to increase further. In addition, weak economic conditions could well extend problems to other segments of lending portfolios including consumer installment or credit card loans, as well as corporate loan portfolios."