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Commentary

The myth of living ‘beyond our means’

Marketplace Staff Oct 15, 2008
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Commentary

The myth of living ‘beyond our means’

Marketplace Staff Oct 15, 2008
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TEXT OF COMMENTARY

Scott Jagow: I’m sure you’ve heard the argument Americans have been living beyond their means, and now, we’re gonna pay for it. Commentator Robert Reich doesn’t exactly buy it.


Robert Reich: The “living beyond our means” argument, with its thinly-veiled suggestion of moral terpitude, is technically correct. Over the last 15 years, average household debt has soared to record levels, and the typical American family has taken on more of debt than it can safely manage. That became crystal clear when the housing bubble burst and home prices fell, eliminating easy home equity loans and refinancings.

But this story leaves out one very important fact: Since the year 2000, median family income, adjusted for inflation, has been dropping. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.

I mean, it’s not as if the typical family suddenly went on a spending binge ­– buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it’s more accurate to view it as an ongoing struggle to stay afloat when the boat’s sinking.

The “living beyond our means” argument suggests that the answer over the long term is for American families to become more responsible and not spend more than they earn. Well, that may be necessary, but it’s hardly sufficient.

The real answer over the long term is to restore middle-class earnings so families don’t have to go deep into debt to maintain what was a middle-class standard of living. And that requires, among other things, affordable health insurance, tax credits for college tuition, good schools, and an energy policy that’s less dependent on oil — the price of which is going to continue to rise as demand rises in China and India and elsewhere.

In other words, the way to make sure Americans don’t live beyond their means is to give them back their means.

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