I am starting to sound like an old broken record in talking about the American middle class. I am sensing big problems that most others are not willing to talk about.
The problem is that the average American family is struggling financially. The bigger problem is that they aren’t quite sure why they are struggling financially.
They listen to reports about how unemployment is down and the economy is improving, even if it isn’t as fast as what was hoped for. I really think that many American families are wondering why they are struggling. But they are not openly talking about it because they don’t recognize that this problem is so widespread.
The economic numbers don’t give us that great of a big picture unless we really know how to interpret them. In fact, not only are they misleading, but they often indicate the opposite of what we are led to believe.
Think back to around 2005 or 2006. It was boom time in the United States. We were near the peak of the housing bubble, but not many people called it a housing bubble. They called it a housing boom, which didn’t imply a popping as is the case with a bubble.
There were some renters who stayed on the sidelines. They probably questioned their own wisdom. They probably wondered how all of these other people were affording nice new homes. The answer is that they weren’t “affording” them.
What wasn’t reported in the headlines back then was the grinding day-to-day struggles of many of those who had recently purchased a house. They could barely keep up with their bills. They saw a large portion of their income go towards their mortgage and the high property taxes that went along with the high housing “values”. Meanwhile, their other bills didn’t go away.
So you had the minority renters sitting there quietly thinking, “why am I such an idiot?” “Why did I miss the boat on this one?”
Then you also had the homeowners boasting of their great savvy in buying a house (or multiple properties). Meanwhile, they sat there quietly wondering where all of their money was going. They probably wondered how everyone else was affording to pay their mortgage.
Once the whole thing imploded, particularly in the fall of 2008, the picture became clearer. The other homeowners were not able to afford their lifestyle either with housing prices so high. It also became clear to those who had stayed renters that perhaps they weren’t idiots after all. It turns out that more people should have remained as renters and been proud of it.
Our Situation Today
There might be a slight bit more openness today, but I still don’t think the extent of the problems are being openly discussed. And as I said above, most middle class families can’t really articulate what the problem is.
I believe this is why Donald Trump and Bernie Sanders have done unexpectedly well in the polls, regardless of what the votes ultimately show. They are tapping into the discontent of the American middle class. Their solutions may be terrible (Sanders more so than Trump), but at least they are acknowledging a major problem.
I think most of the politicians really are just out of touch with the American people. That is why they are not tapping into their feelings. Most of these politicians are well off, financially speaking, and they do not understand the setbacks of an unexpected repair bill that costs $500.
Ironically, aside from Sanders, the only other politicians who has been in this race that could possibly relate is Scott Walker. He is supposedly in debt, and we aren’t just talking about his campaign. He was (probably still is) paying credit card debt and student loan debt for his kids. But Walker did not understand this issue of the struggling middle class and he failed to tap into it. His campaign was a disaster and he went down in flames. He was the first major candidate to drop out.
We hear statistics about the unemployment rate improving, and I have no doubt that it has. I think it is somewhat misleading because we don’t know how many people stopped looking for work just because the options weren’t what they wanted.
But I am not even really talking about the unemployed here. I am talking about families where there is at least one person working. However, even families with two working parents are struggling a lot in many cases. There are families making six-figure incomes (before taxes of course) who are still finding it a struggle. I’m not saying they can’t put food on the table or fulfill their basic needs, but I am saying that beyond this is a struggle.
How is a family with two kids, making a median income of just over $50,000 per year, getting by? I think the answer is – barely.
Real wages (meaning wages adjusted for inflation) have been relatively flat for decades. Supposedly, real wages have been increasing a little lately, but I don’t believe it at all.
I think the consumer price inflation numbers are highly misleading. The two biggest areas where we are misled are taxes and healthcare. When we talk of taxes, it isn’t just income taxes. It is everything, including payroll taxes, corporate taxes, capital gains taxes, sales taxes, excise taxes, tariffs, and so much more. There are hidden taxes in almost everything. We even have to take into account the debt that is promised to be paid for by future taxes. It misallocates capital today and makes us poorer today.
The other factor, healthcare, is certainly getting some headlines, but still probably not enough. Is the CPI data really taking into account all of the increases that the average family is seeing?
While premiums are going up at 20% or 30% or more for many people, their health insurance plans are also changing. Many more people are going into plans that cover less or are high deductible plans. Now don’t get me wrong here, because I don’t mind the high deductible plans. They actually more closely resemble what insurance is supposed to be about. They also help in keeping costs and usage in check, as consumers actually have to think about whether it is worth it to go to the doctor or to buy some expensive medication.
Still, the point is that these plans are covering less and less, while the premiums go higher and higher. I don’t believe the consumer price index is fully taking into account the extent of healthcare costs being imposed on families (and “imposed” is the right word here). I also don’t believe it is accounting for the extent to which these plans have decreased in quality, which means higher out-of-pocket costs.
Also, it is important to recognize that if health insurance premiums are going up at 20% per year, there is a compounding effect. Over a ten year timeframe, at 20% per year, premiums would be three times as much.
To sum it all up, Americans are taking it on the chin financially. Sure, it is better in the U.S. than most other places, but that doesn’t mean we should expect or accept this struggle.
The ones who are struggling don’t want to openly admit it because they don’t understand that most everyone else is feeling the same way. They don’t understand how they can be making just as much money as before – or perhaps even more – yet finding it a struggle to keep up.
Meanwhile, the politicians are too oblivious to tap into this sentiment.
This is why there is going to be a correction. When things are unsustainable, as the housing bubble was a decade ago, then they come to a stop and reverse. We are currently in unsustainable times. It shouldn’t be this hard.
The solution is a correction in the economy and a significant decrease in taxes, government spending, and government regulation. This is what the average American middle class family needs, whether they realize it or not.