Last Friday's proposal by the White House to stimulate the economy with tax rebates is, on the surface, a welcome idea – hey, who wouldn't welcome a few extra hundred dollars in the mail? But it also problematic because it ignores a key problem that helped drive the economy to the point of recession: wage stagnation. It also raises a troubling question: Who would sell a mortgage to someone with stagnant wages?
The Washington Times is no one's idea of a liberal newspaper, but last month it temporarily jettisoned its conservative advocacy and used an editorial to acknowledge this decade has been murderous on the working American.
‘Our perusal of the November jobs report revealed that the private sector created only 64,000 jobs in November, while government added 30,000,’ said the Times' editorial. ‘Moreover, if you compare private-sector payroll-employment growth during the last six months (June-November) with comparable six-month periods in 2005 and 2006, you find that average monthly payroll growth has declined from 213,000 in 2005 to 145,000 in 2006 to 75,000 in 2007. To be sure, jobs are still being created, but the rate of private-jobs creation has declined by 65 percent since 2005.’
The Times then went in for the data kill: ‘The Bureau of Labor Statistics reported that the average real (inflation-adjusted) wage for production and non-supervisory workers was unchanged over that period. Then, after consumer-price inflation surged to a 12-month rate of 4.6 percent in November, the average real wage that month was nearly 1 percent below its November 2006 level. Even worse, the average real wage for non-supervisory and production workers was not a single penny higher in November 2007 than it was more than 50 months earlier in August 2003, after which the much-ballyhooed 'Bush boom' supposedly took off.’
Clearly, today's crisis did not happen overnight. In April 2007, Secondary Marketing Executive pointed to a report by Bloomberg.com that found families earning between $45,000 and $68,300 saw their share of aggregate income decline to 15.3% in 2006, from 15.8% a decade earlier.
Before that Bloomberg.com report, the first major red flag went up after the chaos created by the 2005 hurricanes, when fuel prices began skyrocketing and food prices soon followed in ascension. We know where that domino path followed – thanks to stagnant wages, people could barely afford to fill their gas tanks, then they could barely cover their grocery bills, now they can barely pay their mortgages.
More people need to join the Washington Times in admitting the average American did not enjoy financial prosperity for most of this decade. If anything, there was a major denial in government, the media and the financial services industry regarding the state of wage stagnation across the country, even when the U.S. was supposedly recovered from the last recession and the 9/11 jolt earlier in the decade.
So, in view of that, why was there such a frenzy in the past several years to fit so many of these people into mortgages they clearly could not afford? Isn't it odd that a period of significant mortgage origination coincided with a period of significant wage stagnation? And, today, the results of that misguided equation can be seen all around us.
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com)
