I know America is in trouble when I notice my family’s own spending habits changing for the worse.
There was a time about a year ago when we were flush. We were a dual income family. My wife and I both had full time jobs. Our joint income was around $150K. That sounds like a lot of money but because we live in Fairfax County, Virginia it is far less than it seems. For example, according to a Washington Post study a single mother with two children, one an infant and one a preschooler would need nearly $68K for a “bare bones” lifestyle in my county. Yikes!
Last October my wife lost her job. Our income was reduced by a third. Fortunately, we didn’t notice the change that much. Her employment was not an absolute necessity. We got by with minimal effects on our lifestyle. We even purchased a new car.
And so it went through 2005. My wife picked up a few greenbacks here and there. She built computers for friends and strangers. She taught a class at a community college. Tax refunds and my occasional three-paycheck months seemed to even things out. We did what most people should do in our circumstances. We deferred expenses when we could. We ate out a bit less. And we waited for better economic days ahead. If they were to happen anywhere, they should happen here in Fairfax County, one of the most prosperous counties in the country.
My wife recently took a part time job maintaining the computer infrastructure at a neurology office. She works about twenty hours a week and enjoys her work. However, she is making at least a third less per hour than she used to make. Needless to say, as a part time worker she is not being offered 401-K plans or other benefits. Just like many others, she has been downsized.
If she had remained underemployed I am sure that we would continue to get by somehow. Nevertheless, our style is becoming increasingly crimped. We managed to avoid drawing from our savings account somehow, but I have noticed our ready supply of cash has steadily diminished over the months.
Since then Hurricanes Katrina and Rita hit the Gulf Coast, driving up the cost of gasoline, which had been on an upswing for the last year anyhow. We have done sensible things to cope, like buy a hybrid. I am also fortunate enough to be able to bike to work. Even so, we notice our gasoline costs mounting. The tank of gas we bought a year ago for about $20 is now $32. My wife, who used to sit at home most days, is now commuting thirty miles or so a day five times a week.
Our bottom line is that money that usually was around at the end of the month and thrown into savings or spent on the occasional frivolity is rarely there anymore. It was spent on life’s necessities instead. Yet this is not the half of it. I have noticed that other bills that used to be paid by insurance we are now largely responsible for paying. All three of us went to the dentist last quarter. Our services were nothing unusual: basic cleaning and X-rays. Insurance picked up about $25 for each of us. The rest was paid for out of pocket. This weekend I wrote out a check for more than $300 to the dentist. Not a tooth was pulled nor a cavity filled.
I am one of the fortunate ones. I have a good and flexible health insurance plan. I shudder to think what many less fortunate Americans are going through. I am willing to bet that for millions of Americans the dentist has now joined the “nice to have” category.
Like many Americans stuck in this modern world, we need more than a personal physician. My wife has a number of conditions. It is a rare month when she has not seen at least two or three doctors. Most of the time our insurance picks up the bill. Sometimes we need to see specialists outside the plan. This means paying full price and getting some portion back months later after claims are paid. Then there are the costs of prescription drugs. They keep going up. Of course, we are expected to keep paying more of these costs.
The facts are that for many normal middle class Americans these trends are now turning into real economic hardship. I do not think official government statistics are quite capturing them. We can get some inkling of how nervous Americans are from a recent survey of consumer confidence, which plunged last month. I am beginning to believe that the official government statistics understate the true costs of living. The costs of necessities are going up quickly. This is perhaps why those Americans fortunate enough to be homeowners are making ends meet by living on their house’s equity. In addition, in response to rapidly escalating costs of basic services more Americans are deferring payments on their credit cards. Some lenders, feeling nervous about their customer’s precarious financial conditions are upping minimum monthly payments.
Everyone is affected by the increasing price of oil. Come this wintertime, those who depend on natural gas for home heating are going to get more sticker shock. Natural gas prices may double between last year and this year. Once again, these are not optional costs. Freezing to death is not an option. I expect Americans will add these costs to their debt burden and hope they can keep managing the debt. I doubt that will be the case. The age of cheap oil is over for good.
What we are experiencing is no longer prosperity. It is a combination of a number of ominous factors. It is partly inflation. It is also unemployment, underemployment and reduced wages when a worker finds a new job. America is living on the margins.
These are dangerous times. Americans are taking on increasing but necessary expenses yet have less ability to pay for them. We are in hock up to our eyeballs. We have supersized our lives without necessarily having the means to afford our lifestyle. For many of us our only real wealth is our home equity. What would happen today if real estate prices suddenly collapsed? In the 1920s, the stock market crashed and triggered a depression. This time it could be a collapse of the housing market.
And if all this economic uncertainty were not enough, we also have to manage hurricane relief, fret over international terrorism and, oh yes, try to stave off a virulent bird flu. This flu has already infected humans in Asia and could kill hundreds of millions across the world if it is not contained and if effective vaccines are not developed and made widely available.
I feel that we are like the frog that is put into a pot of tepid water on the stove. The burner is on and the temperature in the pot is rising. However, it is rising so slowly that the frog is not aware it is about to be boiled to death. I along with lots of other Americans have the uneasy sense that our economic lives are fragile and increasingly risky. Something will give and soon.