The Society of the Owned: Caught in the Middle

Part Four of a series.

Let's return, once more, to our metaphorical intersection from parts two [1] and three [2] of the series. Except, where we once imagined a doomed pedestrian just preparing to cross the intersection, let's imagine a group of pedestrians stuck in the middle of the intersection. When they started across the intersection, they had the green light. As far as they knew, it was safe to cross. But — as luck would have it — they were just halfway across when the signal changed. Now, traffic whizzes by them, on both sides, heedless to their plight as they find it impossible to finish the journey to the other side of the street, and difficult to go back whence they came.

It's not a stretch to imagine those pedestrians as representing the middle-class, buffeted by the credit crisis on one side and the subprime crisis on the other, and finding themselves caught in the middle, with no real options except to hope the signal changes again, so they can either scramble to the other side of the street, or make a hasty retreat.

Upward mobility in the American economy has always been something like the popular 1980s computer game, "Frogger [3]," in which players had to maneuver their frogs across a busy street. Doing so successfully often meant taking two hops backward of sideways for every one hop forward. Failure to move fast enough meant getting squashed flat by oncoming traffic. Today, after hopping sideways for as long as possible, America's middle class is getting flattened, or — for the lucky — taking several hops backwards.

Some may find themselves standing in line for payday loans [4] alongside some of the people from the previous post, as the wreckage spreads ouwtward from the subprime mortgage implosion.

We're talking to doctors, attorneys, and businesspeople," says Carol Freeland, a partner at PRM Financial. "Just because you make a lot of money doesn't mean you don't end up in trouble."

That may be why payday lenders, which advance customers money on their paychecks at rates of up to 500%, are migrating to more affluent neighborhoods. According to a recent Brookings Institution study, there were only a few hundred payday lenders in the U.S. in the 1990s; now there are more than 23,000, with 37% located in Zip Codes where the median income is at least $48,000. "People who never dreamed they'd go to a payday lender are going," says Gail Cunningham of the nonprofit National Foundation for Credit Counseling.

The payday lenders may just be their next stop after the pawn shop [5], in an effort to keep from defaulting on their pawns shop loans.

Dave Adelman, president of the 2,400-member association, said that people are taking longer to pay back their loans and are more often taking the cash and never coming back for their goods.

...Some pawn shops say they are also seeing a new group of more affluent customers coming into their stores.

"People are rummaging through the jewelry boxes, and stuff they are not wearing they are turning into cash," said Adelman, who also owns two pawn shops in Atlanta.

He said it is the same story from members across the country.

These nascent and supposedly established members of the middle class are finding themselves caught between the subprime crisis and its effects in a way that wasn't supposed to happen to people like them. (Though not necessarily in a way that was entirely unforeseen, as we explored in part two [1].) As these alleged members of the ownership society find themselves actually owning less — whether it's never-reclaimed pawn shop fodder or the house that went from money pot to money pit with a simple rate adjustment — it's not clearly exactly how they will respond, but there are signs. The middle class frustrations [6] Isaiah Poole noted are one. The 180-plus comments on this MSN Money post — which says of the collision of the housing slump and the credit crisis, "This is a good thing." [7] — are another.

They are, as least in their own minds, people who did the right things; or, at least, nothing their neighbors, family members and friends weren't doing: pursuing the "American dream" of home ownership. As a former Wall Street executive [8] noted, the "everyone a home owner" of the present is closely related to the "chicken in every pot" sentiment of the 1930s. "Home ownership" and "American Dream" are pretty much synonymous, and have been since at least the post-WWII era

And most of them bought it, literally. Just as their parents did, but since the post-WWII building boom middle class reality has not kept pace with the "American dream." Baby boomers worried about retirement might have seen the handwriting on the wall in their smaller-than-expected inheritance from the "greatest generation." [9] That may be disappointing enough, but when paired with the declining value of the homes intended to secure their retirement, and finance their children's education, it's devastating enough that Congress and the White House are now arguing about a stimulus package to bail out "prime borrowers" [10] dealing with a perfect storm of rising mortgage rates, falling home values, and a dearth of credit which all have their roots in the subprime crisis to some degree.

Now add to the mix the growing ranks of highly skilled and out of work [11], educated, white collar workers who are spending more time looking for work and not finding it [12], and whose who — if they reenter the workforce will do so for less pay and fewer benefits.

Once concentrated among manufacturing workers and those with little work history, education or skills, long-term unemployment is growing most rapidly among white-collar and college-educated workers with long work experience, studies have found, making the problem difficult for policymakers to address even as it grows more urgent.

"What has happened is a polarization of the labor market. It was very strong at the very top and very strong until recently at the bottom," said Lawrence F. Katz, a labor economist at Harvard University. "But in the recent weak recovery, and now recession, demand has been very weak" for jobs in the middle.

...The growth in long-term unemployment has occurred even as displaced workers have taken bigger pay cuts to reenter the job market. A 2004 study found that workers who lost a job in 2001 to 2003 took an average pay cut of 17 percent in their new jobs, more than double the average cut of those displaced in the late 1990s.

"When people are losing good jobs these days, they have a very hard time getting back to the type of job they had before," said Andrew Stettner, deputy director of the National Employment Law Project, an advocacy group that presses for more generous unemployment benefits.

While strong corporate profits, low inflation and record manufacturing output characterized the extended recovery that followed the 2001 recession, some economists call that period of expansion a "CEO's recovery." Real wages were mostly flat, poverty ticked upward and an unusual number of people had a hard time finding work — a fact masked by relatively low overall unemployment rates.

(Then consider that many of them may find themselves locked in the vicious cycle joblessness and underemployment that Michael Kwiatkowski describes in an excellent post about stumbling blocks [13] on his path towards employment and economic stability.)

Add it all up, and you have the perfect recipe for the kind of middle-class anger expressed in the comments on the MSN Money post and the comments that Isaiah referenced in his post. We'll take a look at a couple of aspects of that anger, and where it might be directed, next in this series.