Economy squeezes the American Dream

By David J. Lynch, USA TODAY

But now,
whipsawed by plummeting home values, $4-a-gallon gas, rising food
prices and gyrating financial markets, Americans increasingly fear that
the national bargain has unraveled, that their once-steady march toward
affluence has derailed. In a new USA TODAY poll, 54% of those surveyed
say their standard of living is no better today than five years ago.

“Fewer
Americans now than at any time in the last half century believe they're
moving forward in life,” concluded a recent report by the Washington,
D.C.-based Pew Research Center.

The USA TODAY
respondents were more upbeat about the prospects for improvement in the
next five years, but only 45% expect their children to live better than
they do.

“I don't think it is going to be as
easy for them. They're going to have to pay back a tremendous debt
load. … I just don't see the opportunities being there,” says Matt
Gwynne, 63, a retired executive in Angier, N.C.

So is the American Dream dead? Well, it's at least wounded.

Today's economic malaise caps a prolonged period during which the typical American lost ground.

From
the end of the 2001 recession through last year, median household
income fell almost every year even as the economy expanded and
individual workers became more productive. The most recent official
data indicate that in 2006, half of all families made more than $58,407
and half made less. That compares with an inflation-adjusted peak of
$59,398 in 2000.

This financial stall marked
the first time since World War II that the typical family was worse off
at the end of an economic expansion than at the start, according to the
Economic Policy Institute (EPI), a left-of-center think tank in
Washington, D.C.

“This is the first business
cycle on record where the median family income failed to recover its
previous peak,” EPI economist Jared Bernstein says. “It's been a
uniquely disappointing cycle from the perspective of the median-income
family.”

And that was before a financial
crisis emerged last year from a remote corner of the U.S. housing
market to stalk every worker, firm and family. Friday's nearly
400-point plunge in the Dow, triggered by a sharp rise in oil prices,
only underscored a gathering unease about the future.

Suddenly,
a nation that confidently had binged on McMansions, huge SUVs and
flat-screen TVs faces a future of smaller dwellings, shrunken cars and
painful credit card debt repayment.

A shift toward small

Economists
cite numerous culprits for the financial fizzle: weaker unions unable
to resist pressures on wages, more intense global competition and a
mismatch between a growing demand for skilled workers and slowing
growth in the typical worker's years of schooling.

Anecdotal
evidence of compressed living standards isn't difficult to find. In
2007, the median American home was almost 50% larger than the typical
family dwelling a generation earlier in 1975. Tomorrow's homes are
likely to be smaller, not larger, as the easy credit that made suburban
palaces affordable is no more.

Likewise, the
ever-larger vehicles Americans drove in recent years owed their
swaggering existence to a now-bygone era of cheap oil — $12 a barrel in
1998. With a barrel of oil now costing nearly $140 and gas prices at $4
a gallon, consumers have abruptly ended their decade-long love affair
with behemoths such as the nearly three-ton Ford Expedition (twice the
weight of May's best-selling Honda Civic).

Underscoring
the new reality, General Motors last week announced it's closing four
truck plants, boosting production of fuel-sipping sedans and
considering selling its iconic Hummer brand. Executives industrywide
are scrambling to retool for what they say is a permanent shift in the
American lifestyle.

“There's a tremendous
change in this market going on. A tremendous shift from light trucks,
pickups, heavy SUVs toward more compact passenger cars. … The times of
having cheap energy are over. Mobility will get more expensive for all
of us,” says Stefan Jacoby, 50, CEO of Volkswagen of North America.

In
Reno, information technology professional Bob Ryczko, 36, is so
concerned about the future that he's decided not to marry or have
children. Despite a base salary of about $130,000, Ryczko expects to be
worse off a year from now because of fast-rising food and energy costs.

It's
not as if there were no economic problems in the late 1970s and early
1980s, when Ryczko was growing up in Buffalo. Oil prices surged after
the Iranian oil embargo in 1979 and the subsequent 1981-82 recession
was the most severe since the 1930s.

Yet,
simply by working hard at what Ryczko calls “blue-collar jobs” — his
dad was a printer, his mom worked for the local phone company — his
parents put two kids through college and on the path to a better life.

Now,
with swollen health care premiums, college tuition rising twice as fast
as the rate of inflation and food and energy growing more expensive by
the day, duplicating his parents' accomplishment seems impossible.

“Even in my 20s, everything seemed to be very obtainable,” Ryczko says.

“Now
with the economy, oil prices and everything, it's just very difficult
for Americans to stay in the middle class. We're getting squeezed out.”

Widespread angst over this “middle-class squeeze” has animated the presidential campaign.

In
November, likely Democratic nominee Sen. Barack Obama identified an
urgent need “to reclaim” the American Dream, saying, “Today, the cost
of that dream is rising faster than ever before. While some have
prospered beyond imagination in this global economy, middle-class
Americans — as well as those working hard to become middle class — are
seeing the American Dream slip further and further away.”

Last
week, Arizona Sen. John McCain, Obama's presumptive Republican rival
this fall, acknowledged widespread economic anxieties but struck an
upbeat note.

“We've always believed our best days are ahead of us,” he said. “I believe that still.”

A pinch on the middle class

Writer
James Truslow Adams was the first to coin the term “American Dream,”
writing in 1931 that it was “that dream of a land in which life should
be better and richer and fuller for everyone, with opportunity for each
according to ability or achievement.”

Amid
the darkest days of the Depression, with the unemployment rate then
heading toward 20%, Adams' ideal seemed more illusion than aspiration.

However, once the nation had escaped the clutches of economic collapse and world war, his vision was realized.

In
a period that economists now refer to as the golden age, rich and poor
alike prospered. From the end of World War II in 1945 to 1973, those at
the bottom of the income charts actually advanced a bit faster than
those at the top, in what Harvard University economists Claudia Goldin
and Lawrence Katz labeled “growing together.”

In recent years, however, most of the economic gains have gone to those at the top.

The
richest one-tenth of American families — those with incomes above
$104,700 in 2006 — accounted for almost half (49.7%) of all income that
year, according to economist Emmanuel Saez of the University of
California, Berkeley.

That represented the
highest share since 1917, higher even than at the stock market peak
before the crash of 1929, says Saez, who studied income tax and Census
data since 1913.

His analysis shows that the
richest of the rich — the top 1% of American families making at least
$382,600 — have garnered especially large gains. From 1993 to 2006,
those families captured about half of the nation's overall growth. From
2002 to 2006, they received about three-quarters of total growth.

Saez's
research helps explain the seeming contradiction between the
well-documented middle-class frustration with working harder just to
stay in place and the American economy's continued growth.

The
U.S. economy last year was almost 18% larger than in 2000, according to
the Bureau of Economic Analysis. But the typical American family, whose
income dipped slightly over that period, saw no evidence of it.

There's
no doubt that over the long term, the typical American's living
standards have improved dramatically. Compared with the 1970s,
Americans have higher incomes, bigger homes, fancier cars and better
health care.

An explosion of digital
technologies, even just since 1990, has introduced a wealth of
communication and entertainment products whose benefits aren't readily
apparent from sterile income statistics. More than 30 million Americans
traveled to another country in 2006, twice as many as in 1990.

In 2007, Brink Lindsey's The Age of Abundance
celebrated the emergence of this era of mass prosperity. The Cato
Institute analyst notes that items that were considered luxuries in
middle-class homes in the early 1970s — dishwashers, clothes dryers and
air conditioners — now are routinely found in households that are below
the poverty line, which for a family of four is less than $21,200
annual income.

“On the 'stuff' front, people are doing better than ever,” he says.

But
Americans have long taken for granted the idea of continual
improvement. That — and the postwar notion of shared prosperity — is
what's now at risk.

“The problem I see is more stagnation than out-and-out decline,” Bernstein says. “But stagnation is a huge problem.”

A more serious problem

For some, the problem is more serious than stagnation; it's the very real prospect of sliding back.

Growing up in Sunnyvale, Calif., Dale Keller had no illusions about the difficulties of maintaining a middle-class lifestyle.

His
father worked for Wonder Bread for 35 years, but five years before
retirement was downsized out of his job as human resources director and
sent to manage a bakery.

“There will be no middle class the way we're going in this country,” he warned his son.

So after graduating from Golden Gate University in San Francisco, Keller anticipated a career path that would twist and turn.

He
navigated more than two decades' worth of corporate upheavals before
accepting in July 2006 a $150,000-a-year marketing position with a
Pennsylvania manufacturer of automated train control systems.

Four
months later, the company opted to leave the business to concentrate on
more promising areas. After 24 years in the industry, Keller was out of
work.

His bad fortune came just as the
economy began to feel the first aftershocks from the housing collapse.
After almost two years, he still can't find anything that pays much
more than half of his former salary. And employers won't hire him for
those jobs, fearing he'd eventually grow dissatisfied and leave.

“I'm one of those who've fallen through the cracks. I don't know what to do,” he laments.

“It's like your train's derailed, and you can't get it back on the tracks.”

So now Keller, 46, lives in Canonsburg, south of Pittsburgh, and wonders how long his savings will hold out.

He's
tried to support his wife, whose health problems keep her from working,
and 9-year-old daughter by trading currencies and stocks from home.

It's not working, Keller says.

“I'm in a squeeze,” he says. “And I'm just praying to God I can make it through.”

This
story is the first in an occasional series examining how Americans and
the U.S. economy are not advancing, particularly in relation to foreign
competitors.