Speaking From the Middle
Now, I ain't no economist, and I ain't no economist's son—but I do have eyes, and ears, and I do live in the United States. And the people around me, for the most part, are those who make (probably) something well under $100,000 a year. For the most part, we've lived reasonably comfortably for the past twenty years. Our homes have increased in value steadily even though our income has not. Our children graduate from college (a good sign for the future) and, though they are generally saddled with debt from student loans, jobs (until recently) have been there for them. With a little luck and careful purchase, many of them were able to buy their own homes, were able to use the increasing value of their homes to offset the burden of college debt.
When my parents moved here to Brooklyn in 1970, they bought a house, an elegant townhouse, for $35,500. My brothers and I, in settling their estate, have sold the house for over 25 times that (20% less than it would have gone for two years ago, but a fine return by any standard). Seeing that type of return, others of the middle class have tried to gain the same way, by becoming gentrifiers (as my parents were called), buying some of New York's superb housing stock in not-so-stellar neighborhoods, renovating, and waiting for the housing boom to continue. They bought magnificent brownstones in Bed-Sty and Crown Heights that were in horrible condition and worked hard on their houses, generally renting the upper floor apartment to manage mortgages that could not be handled on salary alone.
Like the college graduates joining the workforce already hundreds of thousands of dollars in debt, these homeowners had faith in themselves and America. Few had ever seen a sustained economic downturn (the worst most of us have lived through is the hyper-inflation of the 1970s and the economic chaos of that time—chaos that seemed to have ended for good by the mid-1980s) and fewer believed it could happen.
The advice was simple: spend now, for everything is going up, up, up. Get that education, no matter the cost—it will be worth it, in the end. And get the best: that will be worth even more. Don't be penny wise and pound foolish. Want to buy a house? Buy the most house you possibly can, even if the mortgage seems beyond your capacity. In a few years, after all, you'll be earning more—and the house will be worth a lot more.
Yeah, yeah... we all know what happened to that.
But (whew!) the economists are telling us that the worst is over. The economy has bottomed out and things will get back to “normal” (that “normal” was a chimera—but nevermind) quite soon. Unemployment may continue to climb, but we have weathered the storm.
Say what? Have any of these economists talked to anyone living in the middle economic zone of America? Do they have any clear idea of how close to the edge millions of Americans are right now? If they do, don't they see that there is no way to back away from the edge and that the rocks beneath their feet are crumbling?
None of what I am saying is new to anyone in America's middle class. When I take my dog to the park for a run, I mingle with small landlords, sanitation workers, postmen, cooks, teachers... the run-of-the-mill of New York or anyplace else. What are they saying? It's going to get worse. Why are they saying that? Because they know too many people who are trapped with no way out, people who can't pay their debts. We all do.
Those people who bought the brownstones have them on the market right now for enough to cover their debts, but no more. Building materials lie piled in the living rooms and back yards. Though the apartments, which they finished first, may be rented, rents are no longer going up like they were. In fact, they've been coming down. They won't get as much for the places next year—and don't have the money to cover the difference that will make towards the mortgage. Not to mention that prices continue to slide. Not as fast as they were, but they are still going down—and people are getting desperate.
I know someone who just consolidated his college loans. He has graduate degrees and a secure job, but the loans (he has discovered) eat up over half of his take-home pay—and the extra income he was expecting to make through moonlighting just isn't there. As rent takes up another half, he's losing money each pay period—even before eating a bite. He's going to have to move to a much, much cheaper place. Oh, and guess what? His landlord isn't going to get as much money from the next tenant (though he may not know that yet).
Our economy cannot get better as long as too many people owe more money than they can ever reasonably pay back. And there are millions who do. Most of these aren't bad people, or foolish. They merely believed that what they had seen happening would continue to happen.
What to do? I don't know, not really. But rash forecasts of recovery won't help. They will only further depress those who see themselves falling over the edge yet who, so far, are holding on for dear life. Talk won't help them.
We need to do something before they fall. Sure, they are partly to blame, but that's irrelevant right now.
Cutting spending and cutting taxes won't help. The impact on individual lives is puny, and it is individuals we are talking about here.
Massive programs showing faith in our cities, our industries, and our educational structures would help, but we don't seem to have the willpower. Developing a rational health-care system certainly would help (for that's another area pushing people closer and closer to the edge), but too many people are unwilling to look at a broad enough picture for that to happen.
A complete restructuring of our banking system, along with a massive re-evaluation of debt as it exists now in America, however, may be the only way out. The loans need to be taken out of the profit cycle, at least for now, interests rates capped, past payments applied to principle alone and past accrued interest above a certain low percentage forgiven (reducing the debt substantially).
As I said before, I don't know if even this can be the answer.
All I know is that rosy forecasts can't solve the problem of debt that threatens to push way too many of us over the edge—dragging the rest of us (ultimately) with them.