What happen to the “American Dream” – Gabriel Lorden of Philadelphia, PA.

The foundation of this country is its strong middle class workforce who once believed that anyone could obtain their “American Dream”.  However, the dream of owning a nice house surrounded by a white picket fence, sending your kids to college, and having Social Security benefits at retirement resembles just that, a dream for a lot of Americans.

The most important issue in this year’s election seems to be the economy but this topic has now unfortunately been “politicized,” meaning that you can’t talk about it (or blog about it) without either being applauded or hissed by fans of each political team.

The Amercian Dream – Gabriel Lorden of Philadelphia, Pa

The sad truth is that fixing that economy is going to take decades, regardless of who’s in power.

 

But we have to fix it or we’re going to become a nation of a few million aristocrats and 300 million slaves.

To start to fix the economy we first have to understand what’s wrong with economy and how did we get there.

First, its not regulations or uncertainty or taxes that are crippling businesses and therefore crippling our economy.  This is apparent by the recent all-time S&P 500 profits. What is wrong is that the amazing profits of American businesses aren’t flowing through to most Americans except those at the very top.  This is evident because the percentage of Americans with jobs is at the lowest level in three decades and wages as a percentage of the economy have hit an all-time low.

Second, debt is a huge problem.  Total debt across our economy has skyrocketed in the past 30 years and not just in absolute dollars.  Our debt has soared from less than 100% to GDP 30 years ago to more than 350% of GDP. To be clear, debt doesn’t just mean the federal government debt; it’s everyone.  The growth of borrowing has shapely outpaced economic growth for corporations, state and local government, and households.

The next big problem is our growing inequality. The top 1% of the country is getting ever-richer, while everyone else treads water or loses ground which started in the early 1980s. The inequality was caused by two big reasons. First, “globalization” opened up a vast new labor pool; 3 billion people who were willing to work for a lot less than Americans.  Second, the decline of labor unions, put pressure on wages with average hourly earnings (adjusting for inflation) which haven’t changed much in 50 years.  Meanwhile, taxes have been cut sharply for investors, owners, and high wage earners which to an explosion in the pay of CEOs and other senior execs and investors relative to average workers.

The problem with inequality, by the way, is not just the sense of unfairness. It also hurts the economy because “the 90%” spend a lot more than “the 10%,” and the 90% is hurting.

 

Lastly for the past 30 years, we’ve subdued our growing inequality with increasing government spending on social programs such as Social Security, Medicare/Medicaid, unemployment and so forth.  Not to mention we got ourselves in an unnecessary war looking for imaginary WMD but lets that topic for another blog in the future.

So what’s the answer; how do we make the “American Dream” a reality again?

First, we all need sustained discipline and a smart long-term financial plan.  Specifically, consumers need to spend less, save more and pay off their debt.

Second, companies need to stop being so obsessed with “profits” and start sharing more of their immense wealth with their employees.

And then, lastly, of course, we have to implement a plan to eventually get our massive government deficit under control. We don’t want to do this immediately, in one fell swoop, because lots of Americans and the economy have become highly dependent on that government spending. It took us 30 years to get into this mess; it will probably take us 30 years to get out.

Posted by Gabriel Lorden

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