Welcome To The Third World, Part 2 - Real Lives

Our debts have overwhelmed even zero interest rates and trillion-dollar deficits

by John Rubino 

Yesterday’s Wall Street Journal devoted an entire page to the differences between today’s economy and a typical recovery:

Slow Recovery Feels Like Recession
Americans are two years into a recovery that doesn’t feel much different to many of them from life during the most bruising recession in seven decades. Scenes of the long haul back from the slump show a nation struggling to rebuild after a battering that crossed ages, regions and occupations.

A sobering set of economic statistics is at the heart of tales of Americans moving in with relatives, switching careers and dialing back on spending to cope with straitened circumstances amid the fitful rebound.

One benchmark, income of the median household—meaning the one in the very middle of the middle—declined 3.2% to $53,518 during the 2007-2009 recession and fell a further 6.7% to $49,909 between June 2009 and June 2011, according to an analysis of monthly Census Bureau numbers. According to a study done by former Bureau staffer Gordon Green and others at data-crunching firm Sentier Research, the income of the typical American household, adjusted for inflation and in 2011 dollars, has dropped well below the January 2000 level ($55,836).

Other data paint a similarly bleak picture. No recession since the Great Depression was deeper or longer than the most recent. It has taken two years for the nation’s total output of goods and services to return to pre-recession levels, longer than after any recession since World War II. And on a per-capita basis, the Commerce Department said Thursday, output remains 3% lower than it was at the end of 2007.

Since the recession’s end in mid-2009, the economy has been expanding but it isn’t adding jobs at a fast-enough pace—at least 150,000 a month—to absorb the growing population. The unemployment rate stands at 9.1%, and nearly half the unemployed have been out of work for six months or more. Housing, the most fragile sector, has yet to rebound. As of June, home prices were 10.1% below mid-2009 levels. One in five mortgage borrowers has a loan bigger than the value of the underlying home.

Education, once a reliable means to employment and earning power, has been no insurance against declining incomes during the recovery. Between June 2009 and June 2011, the median income of households led by high school graduates fell 8.2%, Sentier estimates. Households led by people with two-year associates degrees saw incomes fall even more: 11.2%. And even those led by individuals with bachelor’s degrees were squeezed: down 5.9%.

The Journal then illustrated this point with some real-world examples:

Retrenching After Earnings Decline
Groundhog Day, Feb. 2, 2010, isn’t a day that Tanya Ross-Lane of Akron, Ohio, wants to relive.

After 13 years helping workers at Diebold Inc., a maker of ATMs and security systems, update their job skills through training programs, she was laid off from her job, which paid $55,000 a year.

At the time, her husband, Michael Lane, also was unemployed, having lost his job with a home contractor, where he was earning $15 to $20 an hour pouring concrete and installing cabinets and floors. The couple sold her 10-year-old Saab, kept their 2003 Jeep, and worked out a lower interest rate on their mortgage. “We keep things modest. We don’t go out much. We cut off the lights and don’t buy steak,” Mr. Lane said.

Ms. Ross-Lane, 54 years old, took a six-week job with the Census Bureau. She also joined a local church’s Community Job Club to keep her spirits up and network. Through Diebold connections, she learned of an opening: the Portage Lakes Career Center, a technical school in Uniontown, Ohio, needed a Human Resource Development Coordinator to design classes to help workers update skills. Ms. Ross-Lane started Nov. 1, 2010, earning $40,000 a year.

In May 2010, Mr. Lane, 58, landed work through a temporary agency, earning $9.50 an hour with a window-installation company. At first, business was good. Last year, when homeowners were receiving tax credits for new energy-efficient windows, he was working 70 hours a week. The company promised full-time employment after 120 days, but 16 months in, Mr. Lane is still a temp—now working 40 hours a week.

As Jobs Vanish, Sticking to Knitting
Shelby Stofle graduated in December from the University of California at Berkeley with $10,250 in student-loan debt—and no job offers from a dozen applications.

The 24-year-old had hoped to work in environmental conservation or sustainable agriculture but struck out even at a grocery store near her rural hometown of Suisun City, Calif.

“It wasn’t what everybody tells you is going to happen when you graduate,” said Ms. Stofle, who studied abroad in Ghana while in college, raises chickens in her backyard and dyes wool as a hobby.

Discouraged, she shifted gears and signed up in January for a free state-run training program near Suisun City. Over several months, she learned how to install solar panels and other skills, but nothing translated into a job.

In March, Ms. Stofle was hired to tend and sell plants for a nursery. But her hours have been cut and she now works part-time, taking home about $1,200 a month after taxes.

“You hear you’re going to get into a career, and it’s going to start paying a lot—that’s why you go to school,” she said. “But I make as much now as my 17-year-old co-worker. I took the time and spent the money to go to school. Did it mean anything?”

Her husband, Greg King, a 29-year-old student at California State University at Sacramento, brings in $700 after taxes each month as a part-time food clerk and bookkeeper at grocery chain Safeway.

That leaves the couple scraping to pay their monthly bills, including $525 in rent, a $300 car payment, and Ms. Stofle’s student-loan payment of $110. Their expenses will increase when Mr. King graduates in December with $30,000 in student loans.

Ms. Stofle just learned that the nursery won’t need her after the busy season ends in November—although she may be asked back in February, when business ramps up. With many employment options exhausted, she said she feels her best shot is to set up her own business, selling her hand-made scarves at craft fairs and farmers’ markets. Meanwhile, Mr. King, who is studying for his bachelor’s degree in criminal justice, said he “didn’t want to put all my eggs in one basket” so he also is training to be an emergency medical technician and pursuing an electrician’s apprenticeship.

Restaurant Gives Way to Food Truck
When Cupertino Cid came to the U.S. in 1988, the Mexican immigrant brought an expertise in preparing barbacoa, a goat-meat specialty that is slow-cooked overnight. “I always hoped to make a living from barbacoa,” he said.

After 15 years managing pizza parlors in Los Angeles, Mr. Cid, 51 years old, realized his dream. He opened a small restaurant—12 stools around a counter—and an outdoor stall at the Alameda Swap Meet, a market frequented by fellow immigrants.

In 2007, he employed four full-time workers. Each weekend, sales topped $7,000; he grilled 18 goats to make enough barbacoa tacos, burritos and sandwiches to meet demand. “There were lines going back farther than you could see,” Mr. Cid recalled.

When the economy began to sputter, the swap meet lost customers—and Mr. Cid’s establishments began to lose money. Two years ago, he closed the restaurant and stall. He bought a food truck, which he parks Saturdays and Sundays on the edge of the swap meet.

Retrenching has been painful for Mr. Cid, his wife, Maria, and their four children. Debts have mounted and the family sometimes is behind the $1,500 monthly rent on their three-bedroom apartment, he said.

Corporate Safety Net Slips Away
Terry Sullivan spent more than a decade at Verizon Communications Inc., working his way up to become a marketing director at the telecom giant.

But when it came to marketing himself, Mr. Sullivan’s initial efforts fell flat. After being laid off in December 2009—among about 26,000 workers let go by Verizon—Mr. Sullivan spent six months at home in Flower Mound, Texas, applying for jobs online.

When his applications got no response—despite experience such as overseeing a $105 million annual budget and more than 1,000 employees and contractors in his most recent post—the 56-year-old realized, “My resumes were falling into a sinkhole,” and changed tack.

He began attending a Dallas-area support group for job seekers and setting up events for his local chapter of the American Marketing Association, and helping other job seekers update their resumes and online profiles. In late 2010, Mr. Sullivan’s networking efforts brought him to a presentation given by Mark Bourg, who runs MarketCision, a Dallas-area marketing firm. Impressed, Mr. Sullivan approached Mr. Bourg after his talk. The relationship resulted in a consulting gig. He is still looking for full-time work.

These days, instead of family trips to the movies and restaurant dinners, the Sullivan family will spend evenings helping mom, Cydney, decorate the purses she sells at local craft fairs.

The Sullivans have had to raid the college money they had set aside for their son and daughter—a high school senior and junior, respectively.

“It’s very disappointing because for my entire career, I’ve always set aside money every time I get paid,” Mr. Sullivan said. “I just kind of had the rug pulled out from under me.”

Some thoughts
Each of these stories has the same downward trajectory: A life that once seemed either secure or clearly within reach simply evaporates, with no obvious way to get it back. A restaurant becomes a food truck; a degree in a hot field becomes a minimum wage job with a big student loan payment; an executive position becomes a zero-security consulting gig. A high-status/high satisfaction middle class existence becomes a struggle to survive. Life in America starts to look like life in most of the rest of the world.

Each story also shares the same ultimate cause, which is excessive debt. We’re paying interest that would otherwise have gone to restaurant meals or vacations, or to hiring environmental engineers or cops or teachers. Our remaining disposable income can’t support all the jobs that used to exist.

This isn’t going to end painlessly on its own. In a typical recession the seeds of recovery are planted quickly and clearly: the Fed lowers interest rates and the government spends more and/or cuts taxes, and people start borrowing and buying. But that’s been tried in the most extreme form ever during the past couple of years, without effect. Our debts have overwhelmed even zero interest rates and trillion-dollar deficits.

So, what now? Inaction isn’t an option, for a couple of reasons. First, unless growth returns with a vengeance very soon, the financial system will be crushed by all the bad paper now hiding on bank and pension fund balance sheets. Second, elections are coming up in the US and Europe, and voters, as they always do in late-stage decadent empires, will choose whichever candidate promises the quickest pain-free fix. So the US, Europe and probably Japan will try again in 2012, with bigger deficits and more debt monetization. QE3 or its equivalent is coming soon.