Scraping by is the new normal

By David Anderson:

Elizabeth Warren in the Boston Review has a great article from 2005 on consumer spending practices.  Using income and expenditure data from the Feds, she demolishes the myth that the reason why so many Americans are in debt is because there has been a gigantic splurge on luxury goods.  Consumer electronics, clothes, food (in-house and out of house) as analytical units have seen their share of the family consumption budget drop over the past generation.  The combination of Moore's Law, out-sourcing to the Pacific Rim and Wal-Mart/Target retail practices have made consumer discretionary products far cheaper today than they were in the 70s even as quality has improved. 

Instead, what she found was that the basics of living have become significantly more expensive:

A generation
ago, the one-income family committed about 54 percent of its pay
to the basics�housing, health insurance, transportation, and taxes.
That is, the one-income family spent about half its income to make
the �nut��the basic expenses that must be paid even if someone
gets sick or loses a job. Today, these basic expenses, including
child care so that both parents can work, consume 75 percent of the
family�s combined income. With 75 percent of income earmarked for
fixed expenses, today�s family has no margin for error.

The current unemployment insurance system is still optimized for the old days when unemployment benefits were about half a week's salary (up to some limit determined by each state).  That benefit level was about sufficient to cover the "nut' as Professor Warren describes it.  The combination of savings, a second job, working under the table, minor debt increases, extended family assistance, and cost-cutting would often suffice to get a middle class family through a cyclical bout of unemployment without massive long term repercussions. 

That is not the case today.  Unemployment in the 2001 recession was persistent.  Unemployment in the 1991 recession was prolonged.  Unemployment in the current recession is an absolute bone crusher with an average duration of six months of unemployment per individual unemployment episode.  That duration has not been seen since the Great Depression.  The social insurance buffers that were previously adequate are no longer adequate, especially when private resources and flexibility are also very limited. 

Scraping by is the new normal for employed individuals.  Clinging on is the normal for the unemployed in today's America where everyone is on their own, and the social safety net has been hacked at for a generation even as private resources and buffers have also atrophied.  We are in for a world and a politics of pain, where anyone who can promise short term relief at any cost will have a hearing and a vote.