“The middle class can’t regain
its self-confidence and financial health without a strong economic
recovery,”
writes Washington Post economics columnist Robert
Samuelson. “But the economy can’t recover strongly without a
financially healthy middle class, which provides most consumer
spending. Not surprisingly, the economic expansion is glacial.
Household debt is reduced gradually. Wealth is slowly rebuilt
through higher saving and stock prices — and the hope that home
values will follow.” 

Those last two sentences need clarification. Household debt is
barely being reduced at all. The Department
of Commerce’s monthly personal savings rate [pdf],
which had topped $600 billion in every month during the second half
of 2010 and the first quarter of 2011, has not gone above $600
billion in any month since June 2011. The percentage of personal
savings (disposable personal income less expenditures) has not been
above 5 percent since June 2011. (Our colonial ancestors in the
1980s saved more than 10 percent per month.) A trio of professors
says half of retirees die with less than $10,000
worth of personal assets. 

And hope does not rebuild wealth any more than faith generates
net sales. We can debate whether higher saving or stock prices
rebuild wealth: Savings accounts are paying less than one percent
interest while inflation has robbed your dollar of ten cents since
2007; and although imaginatively valued stock prices rebuild paper
wealth, they vanish like the gambler’s lucky streak. But there’s no
debate on hope: It doesn’t rebuild anything. 

This gloomy column continues Samuelson’s welcome streak of
out-of-the-park jeremiads. The
historian of the great inflation described the “Withering of
the Affluent Society” in a recent Wilson Quarterly
thinker: 

For millions of younger Americans—say, those 40 and under—living
better than their parents is a pipe dream. They won’t. The threat
to their hopes does not arise from an impending collapse of
technological gains of the sort epitomized by the creations of
Fulton, Ford, and Gates. These advances will almost certainly
continue, and per capita income—the average for all Americans and a
conventional indicator of living standards—will climb.
Statistically, American progress will resume. The Great Recession
will be a bump, not a dead end.

The trouble is that many of these gains will bypass the young.
The increases that might have fattened their paychecks will be
siphoned off to satisfy other groups and other needs. Today’s young
workers will have to finance Social Security and Medicare for a
rapidly growing cohort of older Americans. Through higher premiums
for employer-provided health insurance, they will subsidize care
for others. Through higher taxes and fees, they will pay to repair
aging infrastructure (roads, bridges, water systems) and to support
squeezed public services, from schools to police.

I distinctly remember the mellow of my own generation’s youth
being harshed by numerous think pieces pronouncing that
we would be the first generation in U.S. history not to live as
well as our parents. I suspect if I had a time machine I could find
newspapers in the 1960s saying the same of the baby boom
generation. The first popular use of the term Lost Generation was
to describe the World War I-era cohort. 

Still, Samuelson’s fire and brimstone is needed medicine for so
many of my media colleagues who find it hard to put away their
belief that a Long Boom created by a Post-Scarcity Economy has
ushered in an Age of Abundance that is sustained by debt-driven
Purchasing Power. 

You’ll have to wait for my Reason print column “Rise of
the Five-Dollar Pizza” to find out just how well the deep-discount
retail sector (stores with “Dollar” in the name) has been doing
since the Keynesian death throes began in the early aughts. Much of
that growth is coming as Americans from higher income quintiles
resort to 99-cent shopping, and not just to pick up the occasional
Jesus candle but to purchase the food and supplies they need to
survive. A Family Dollar representative told me: 

We’ve certainly benefitted from the economic backdrop, as sales
growth has been very strong, among the best in retail. Our value
proposition has really resonated in this environment. The primary
strength has been in our consumables areas, i.e., food, health,
beauty, personal care, and household products and chemicals. Things
you need to buy every day to run a household. We’ve been
aggressively increasing our assortment in these areas over the last
few years to provide a broader and more complete assortment…

We are working hard to drive consumables sales higher through an
increased assortment. We have significantly increased our SKU
counts in food and healthy, beauty, and personal care over the last
5 years. 

Samuelson concludes his Post column with the good news
that Americans remain tougher than they were believed to
be: 

For now, what’s telling is the resilience of middle-class norms.
About 11 million homes are “underwater,” reports CoreLogic: Their
mortgages exceed their values. Still, most owners make monthly
payments even though defaulting might be advantageous. Similarly,
long-term unemployed workers send out hundreds of resumes despite
repeated disappointment.

Elsewhere, celebrated investor Jim Rogers
supports public bankruptcy as the way forward: “The solution to
too much debt is not more debt… What would make me very excited
is if a few people [in the government] went bankrupt…”

Meanwhile, back at The New York Times, Floyd Norris

does his part to boost house prices. But Reason commenter John

notices that
Fannie Mae has less than a quarter of its REO inventory on the
market and is unable to sell nearly half of it.