In the midst of a financial crisis and a foreclosure crisis, it is difficult for Americans to take a moment, step back and look at the big picture. But that is what we must do to if we really wish to restore the country to economic health. Even if we effectively address the foreclosure and financial crises, another economic crisis will be waiting for us down the road because the fundamentals of the American economy are weak.
America has been competing in an increasingly global and integrated world economy—and losing badly. America’s losses can be measured by the wages of American men. Since the late 1970s, the wages of American men in the bottom 60 percent of the wage distribution have declined in inflation-adjusted dollars. Black wages are lower than average. So, if 60 percent of American males generally have seen declining wages then more than 60 percent of black male wages have declined. These losses are the result of the American economy shedding high-wage jobs due to global competition.
From the 1940s through the 1960s, male wages increased and American living standards followed these increases. Since the 1970s, living standards have increased largely because American women have worked more and at better jobs. But overtime, more and more American households have reached the limit of income gains from women’s work. For these households, the next means of increasing income was to go into debt.
In recent years, the American economy has been growing not on American earnings, but on American debt. In the report Borrowing to Make Ends Meet, Jose Garcia of the Dëmos think tank states that “between 1989 and 2006, Americans’ overall credit card debt grew by 315 percent from $211 billion to $876 billion (2006 dollars).” Also, “from 2001 to 2006, homeowners cashed out $1.2 trillion in home equity, often in an effort to cope with mounting credit card debt and to cover basic living expenses (2006 dollars).” The financial and foreclosure crises ultimately are the result an American economy built on debt—debt absent of the growing incomes needed to repay loans.
We need an American economy where the earnings of average workers—male and female—increase enough so that Americans can pay off their debt and save. This means we need a strategy for competing in the global economy. We cannot continue to simply watch high-wage jobs disappear without having a plan to replace them.
There are many things that we need to do. We need fair trade agreements, not free trade agreements. We need labor and tax policies that aid average American workers, not just CEOs and major shareholders. We need to make repairs and improvements to America’s infrastructure so that it can support a growing economy. We need to improve our educational system especially as it serves black and Hispanic students. We need a health care system that is as inexpensive and as good as our European competitors. These policies just level the playing field for the United States with its global competitors.
Additionally, we need a national economic strategy and a “coach” for the American economy. In other words, we need political leaders who will see that business leaders build an economy to meet tomorrow’s challenges and not only to make a quick buck today. The key example of this failure was when the American auto industry decided to settle with building gas-guzzling SUVS and trucks while the Asian auto industry invested in developing hybrid technology. There was no reason why the U.S. auto industry was not out in front on hybrid technology.
All the signs are that the energy future is clean and green, but once again the United States is lagging. We still have political leaders who get excited about drilling for oil—yesterday’s energy—when they should be devising a plan for how we will compete with Germany, Spain and Denmark in clean and green energy production. There a lots of opportunities for the United States to develop high-wage jobs manufacturing products for the world’s future needs, but we are not taking advantage of them.
We can fix the financial crisis and the foreclosure crisis, but that will still leave us with a country with a broken economic engine. Male wages are declining and household debt is increasing. We cannot have a growing economy when each year the average household has less and less real income to spend.