The American Mind

What could possibly go wrong?

William Hillman

(2/2020) This past week I helped my son with a school report on the fall of the Weimer Republic. The interaction went something like this:

Me, "What are you writing?"

My son, "I’m writing a paper on the fall of the Weimer Republic."

Me, "Give me the keyboard and get me a cuppa tea."

An hour later his report was three times as long as the class limit, the table a mess with primary and secondary sources and my son is somewhere playing Fortnight and I never got my cuppa tea.

One of the many events that happened in 1920s Weimar Republic was the rapid increase in wealth inequality and personal debt. For the purposes of this article I am not suggesting this was THE cause of the demise of the republic, it was simply one of an infinite number of ingredients that came together at the right time and right place to form a vile end.

In the last 30 years the US, like most countries, has experienced a skyrocketing wealth gap, and for the middle class, sky high consumer debt. In fact, there has been a growing wealth gap since the inception of the nation. The only time this gap receded was after the two world wars. Throughout modern history, war is the only event that decreases the wealth gap. Consumer debt at this level is unique to the current period.

The world wars transferred income power to those at the bottom of the economy, creating the largest expansion of the middle class in history. This expansion continued into the 1970’s when real family income began to stagnate. Since the 1980’s, the middle class has been decreasing. For the last 20 years, the middle class has shrunk at an exponential rate (with a noticeable slowdown in the last two years).

A word about the difference between income and wealth. Income is simply the money coming in. Wealth is the sum of assets such as property, stocks, savings, etc. Wealth is accumulated and passed down through generations.

College education traditionally has been a pathway into the upper earnings levels. This is still true today, but the value of a college degree has drastically fallen. Postgraduate degrees remain at the highest income potential but have leveled off and are dipping.

Undergraduate degree income potential has drastically fallen but still remains above high school. The flood of undergraduate degrees in the labor marketplace has eroded the earning potential of the bachelorette degree and the hyper increasing cost of this degree has many people questioning its value.

Today’s income potential for individuals with less than bachelor’s degree, including associate degrees, is indistinguishable from high school degree income potential.

The average income for a high school graduate in real dollars increased last year for the first time since 1971.

(I was not able to find any hard data in time for this article that compared technical education and training income to college level. But I have my suspicions. Starting salaries for trades is about $40,000 and bachelorette degree starting salaries is $30,000 and comes with $60,000 of debt.)

College level education is failing the middle class and stripping wealth and limiting future wealth accumulation by indebting its students.

Today’s economy is based on debt and enticing the middle class into a deeper financial hole, preventing wealth accumulation.

Americans are taking on ever larger debt loads as they struggle to maintain living standards. They are borrowing more on their credit cards, taking on soaring levels of student debt and signing more and more personal loans, all making the next recession even riskier for those already struggling to make payments.

Housing prices and higher education costs are rising far faster than most people’s incomes, forcing them to either take on larger debts or forgo what many consider the American Dream – home ownership and a college degree. Those who take on debt often postpone marriage and having children in an attempt to catch up on debt obligations. Bill Fay - Consumer Debt Grows as U.S. Economy Expands.

In the 1970’s less than half of new cars purchased were financed. Most of the financing was done for half the cars’ value and with less than 24-month terms. Today, eighty-five percent of the cars are financed with five- and six-year terms.

The Wall Street talking heads keep telling us consumer debt is good and today’s economy is based on debt. It’s in our best interest to keep it going. In the short term, they may be right, but like the monster it is, debt needs more victims.

Weighted down with college and consumer debt. A person’s future earnings are already spent and there is no path for wealth creation, so the gap will continue to grow at an exponential rate until the middle class is gone.

As long as future income will pay off the debt, no one will notice the cliff ahead. But once debtors can no longer pay, either their debt has to be forgiven, or they have a permanent obligation. In the worst cases, the obligation is involuntary servitude, whether recognized as such or not. Resentment and anger will follow.

Until the current President, industry, with the help of the government, was on a mission to export middle class manufacturing jobs from the United States to foreign countries with lower wages, lax employment, and environmental laws. (I have always been amazed at how politicians grandstand and claim to be "concerned about the environment" yet promote the transfer of manufacturing to counties with the worst environmental regulations.)

Instead of letting minimum wage for low-level occupations rise, the government permits mass immigration to keep wages low.

And then there is automation. Looking down the road, literally several autonomous trucks have driven themselves across the country. Within 5 years, professional drivers, the number one occupation, will start being displaced by automation.

In summary. We have an increasing wealth gap based on indebting the middle class and concentrating profits by eliminating labor costs. So, the current economy bubble is based on indebting a large segment of the population while eliminating their ability to pay off that debt, thus forcing them into servitude. What could possibly go wrong?

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