People are wondering why we have a lack luster recovery and why we aren’t seeing the massive trampoline style recovery of Reagan and Clinton economies. The simple answer is revolving consumer credit. This is not loans, this is simply credit cards etc.
From 1968 until 1976, credit was somewhat hard to get. People weren’t spending on future wages because wages were pretty consistent with the rise of production. In 1976 something changed and the credit market was deregulated and it became easier to obtain access to credit cards, etc., and spend future wages to stimulate the economy. Americans needed this easy credit to continue living the middle class life because wages began to stagnate and flat line.
Continuing from 1988 until 2008, revolving consumer credit continued its rise as wages have remained stagnated and the need for borrowing on future wages became more of a necessity for middle class families.
Now since the crash of 2008 consumer credit has dried up and wages have obviously not recovered. So what does this do to an economy? It flat lines. The consumer is deleveraging, meaning, all that borrowing for 30 years is now up for payment. Wages aren’t there either to make up for the lack of credit.
This is why America needs to raise wages for working families, a call President Obama has made and Senator Elizabeth Warren has echoed. We need to tie wages to productivity again, the way it was before the conservatives started taking control of the economy in the late 1970s with Milton Freidman and others.
The last 30 years of economic growth was due to borrowing on future wages by the means of easy credit. It was a mask that covered the underlying issue of working families not getting paid what they are worth in production.