Downward mobility or movin’ on up?: Getting used to a different view of the future

In my long winded post about how are outsized expectations filled a borrowing bubble that eventually sprung a leak, I mentioned “upward mobility.” I hinted that the idea that each of us should exceed the economic expectations of our most recent ancestors was something that led to the economic break down and that it was something that would have to change.

Enter the term “downward mobility,” explained by Robert Samuelson in a recent column with a nice nod to Karl Marx:

A specter haunts America: downward mobility. Every generation, we believe, should live better than its predecessor. By and large, Americans still embrace that promise. A Pew survey earlier this year found that 48 percent of respondents felt that their children’s living standards would exceed their own. Although that’s down from 61 percent in 2002, it’s on a par with the mid-1990s. But these expectations could be dashed. For young Americans, the future could be dimmer.

Samuelson is one of several conservative writers that I enjoy reading along with Charles Krauthammer and George Will. I like them because they annoy the hell out of smug liberals, they unashamedly use “big words,” and, and this is the scary part, I often agree whole heartedly with what they’re saying. But not necessarily because I am a conservative. Will’s stuff, for example, is really good at defining what a Progressive should be, although most progressives are too timid to turn Will’s derision on it’s head and embrace his definition.

In any event, I’ve agreed with Samuelson before. From that post written in 2010:

Recent headlines have been blaring about July’s huge drop in home sales across the country. Along with a drop in the stock market, the plunge in sales has also lead to a spate of discussion about how the housing market got to this place, and its role in the overall economic downturn the country is experiencing. While the news is bleak, there is a silver lining, I think, for sustainability. There could be a serious shift in attitudes about what housing means. Does the American Dream look like a single family house with a car parked out front? Or is it possible that we might revise that vision to include living in the city and relying on transit? We may be closer than you think.

In that post I was responding to what Samuelson called a “housing fetish,” and I think what he said in that article resonates with the idea of downward mobility. Samuelson, in the article on Downward Mobility, points out that while our wages have grown, inflation and health care costs have eaten most of that wage growth.

It’s already happening. “A decade of health care cost growth has wiped out real income gains for an average U.S. family,” report two Rand Corp. researchers in the journal Health Affairs. From 1999 to 2009, total compensation of a typical four-member family with employer-paid health insurance rose by $23,000. About 95 percent of this (almost $22,000) went to inflation and health care, including employer costs, family premiums, out-of-pocket payments and taxes. For most families, higher costs didn’t deliver parallel benefits. The reason: Health spending is concentrated; the sickest 5 percent account for half the total.

And Samuelson points out in his article on our “housing fetish” it the bubble was filled by

The cheap credit subsidy [for housing] . . . mainly through Fannie Mae and Freddie Mac. These government-sponsored enterprises (GSEs) were economic mongrels: profit-making companies that were given goals of expanding homeownership among poorer buyers. The GSEs could borrow at interest rates barely above the U.S. Treasury’s, because investors regarded Fannie and Freddie bonds as backed by the government.

As I mention in the last post, the American dream includes a house, furniture to go it, a car, and “free roads” and sewers. All those expectations were shared by more and more people, including those at the lower end of the economic ladder. While extending the benefits of a government backed mortgage seems like a sweet thing to do, it lead to trouble.

It seemed a perfect marriage: The GSEs would do well by doing good. They’d earn profits and pass along the benefits of cheaper credit by financing or guaranteeing mortgage loans. Congress could promote homeownership outside budget constraints. By 2009, Fannie and Freddie had lent or guaranteed almost $5.5 trillion in home mortgages, roughly half of the U.S. total. But the marriage between private profit and public purpose failed. In September 2008, the Bush administration took over Fannie and Freddie, which faced huge losses from bad mortgages.

Sorry to zig and zag back and forth between two Samuelson articles. But this leaky dream bubble inflated with the hopes and dreams of so many people wanting to get into a home, and those who aimed to profit by supplying that demand, has lead to the current decline. And the decline may not be just part of a cycle, but an actual fundamental shrinking of money and economic opportunity. From Samuelson on “downward mobility.”

Our children’s futures have been heavily mortgaged. That’s true even if the economy returns in a few years to “full employment” (say, 5 percent unemployment) and past productivity gains (about 1.7 percent annually since 1966) continue. If today’s weak recovery persists, the outlook darkens. Unemployment will remain high, say 7 percent to 9 percent. Wage increases will remain depressed. Young workers will have trouble finding jobs to develop the skills and contacts that lead to better jobs. Productivity growth might falter.

So the bad news for the Occupiers, and all of us, is that the idea that we would live a life better than our parents is, essentially, over. It hurts. And again, it isn’t fair. But what was that dream? As I pointed out in my post, so much of what we were after was a house in the burbs. Not all of us of course, but it’s hard to find people in the middle class who did not see a house as part of what upward mobility meant.

But we can quantitatively and qualitatively change the American dream. After all, it’s our dream, right? The dream doesn’t have to feature resource intensive visions of houses and mortgages for all. Instead, it can be about renting or owning in a high rise. I pointed out in a post on the land use blog awhile back that we ought to be thinking about the Jefferson’s rather than the Cleavers when we think about “mobility.” We ought to be thinking about movin’ on up, not sprawling on out. It’s sustainable, and, well, it’s what’s going to have to happen.