Part 2 How do people cope with so many changes taking place in such a short period?
First, wage-workers dealt with the end of rising wages by adding women and other family workers to the paid labor force, and they worked more hours per year. Between the 1970s and today, the average number of hours worked per year by a U.S. citizen rose by about 20 percent. We worked 20 percent more hours on the job than we did thirty years ago. By comparison, for example, if you look at France, Germany, and Italy, over the same period, the average number of hours worked by their paid labor force dropped by 20%.
Second, if working longer hours and more members of the family working didn’t solve the problem, what was the second thing that the U.S. working class did to cope with the end of the rising wages? The U.S. working class, starting in the 1970s, went on borrowing binges that no other working class in any country at any time in the history of the human race ever did before.
Americans started borrowing. They borrowed against their homes. Keep in mind that the crisis exploded around something called a mortgage – the subprime mortgage. The U.S. working class could never have increased its consumption simply by borrowing against a home. They didn’t have enough wealth to get loans. Banks had to invent ways to lend massive amounts of money to the American people who had no collateral at all.
Credit cards offered a mechanism to allow banks to lend to the working class with no collateral. It is unsecured debt in economic terms. No lenders will lend to a borrower without collateral unless there is something in it for the bank to take that risk.
The answer is the rate of interest. The average rate of interest on a credit card today 18% per year. That’s why there are credit cards. The American working class received loans, hundreds of billions of dollars in unsecured credit, to allow the rise in consumption. And the American working class went for it.
Borrowing money on an unsecured loan solved a problem of where the consumer can get the money to consume.
Now, a working class, exhausted by the amount of work it does, with a collapsing personal life, experience strains and stresses. With several members of the family working, some children needing expensive child care, anxiety builds.
This is a population that has reached the limits. It cannot carry more debt, and it can’t do more work. Therefore this is not a temporary problem.