Saturday, December 19, 2009

The American Nightmare

I was reading “Fast Food Nation” by Eric Schlosser, and in the first couple of chapters, the author discusses the founding of the fast food industry that took place in the first half of the 20th century. Carl Karcher, the founder of burger chain Carl’s Jr., held various working-class jobs before he started the company, one of which was a bread truck driver. He became a bread truck driver around the age of 23, which gave him enough money to buy a home and start a family.

“Really?” I frowned when I read this. “With that job he could start a family? He could buy a home?”

It seemed a miracle to me that a bread truck driver would be able to do all that, so I decided to look into it. I typed “bread truck driver” into the online Salary Wizard, being sure to search within Orange County, California, where Karcher lived. The nearest two jobs I could find were “van driver” and “truck driver, light,” and the starting salary looked to be somewhere between $24,000 and $28,000.

So let’s examine if in 2009, Carl could achieve the American Dream. Let’s say his starting salary was $26,000. You take away 15% for taxes, and you’re left with $22,100. That’s $1,842 of take-home income a month. Let’s then surmise that Carl pays attention to financial experts and only allows himself to spend 25% of his income on housing—that’s $460 per month. $460 per month will get you not a one-bedroom apartment, not a studio, but a smallish room in a shared apartment in a non-trendy area of town. (Let’s say, like most middle-class Americans, Carl has also been to college, but has failed to major in computer programming, so he is now driving a truck. My personal view is that anyone who faithfully devotes himself to 16 years of the American education system and graduates with a degree should have a reasonable expectation to be able to afford his own apartment. For that matter, even people with GEDs should expect a reasonable quality of life.)

Okay, $1,842-$460 gives you $1,382. Let’s also say Carl has student loans to repay, I think those are typically 5% of income, so $108 per month—that leaves $1,274. But Carl is also responsible, and he begins socking away 10% of his take-home pay into an IRA, that’s $184 a month, leaving $1,090. Carl also has car payments—that’s $250/month. That leaves $840. He has auto insurance ($100/month) and health insurance ($100/month). That’s $640. He has occasional visits to the doctor, oil changes, prescriptions, etc.—let’s put that stuff at $50/month. $590. He has haircuts, occasional new shoes, shirts, etc.--$40/month. $550 left. He has gasoline at $100 per month—that leaves $450. He has groceries at $200 per month if he’s thrifty, that leaves $250. Don’t forget utilities (Internet, gas, electricity, cable, etc.) at $100/month, again—if he and his roommate are thrifty. That leaves $150. Let’s say he indulges $100 per month for beers and meals with friends, movies, etc. He never takes vacations. There’s $50 per month left to buy a home and start a family.

Okay, Carl is optimistic. He will put that $50 per month into a fund earning 8% annually to save up for a down payment on a house. Lower-end 3-bedroom homes in that area of California look to be around $400,000 today, which means if he put a 5% down payment on a home today, he’d be paying $20,000. But let’s say home values rise with the inflation rate, and from my shoddy math, the down payment would be $40,000 in 20 years time. Carl’s income has probably increased over the years, but so has the cost of living. And even 20 years later, he still has not managed to save enough to make that down payment. He will be in his late 40s or early 50s before he can afford to buy a home and start a family.

And that is the financial bracket that young Americans live in today. Most of us will have to choose between saving for retirement and being dependent on our children because we chose to buy a home instead. That is, those of us lucky enough to be able to save at all.

And higher education no longer guarantees a great job. The new wisdom is that a college degree is mostly useless—you need a graduate degree in order to live comfortably. Even that doesn’t always work—there are plenty of graduate degree-holding people who are not paid adequately for their knowledge.

In a Harper’s article entitled, “Labor’s Last Stand” (July 2009), author Kevin Silverstein states that the rise of the middle class in the U.S. coincided with the rise of union organization—that is, the middle class was at its strongest at the same time unions were at their strongest, around the middle of the 20th century. The strength of unions has steadily declined since then, to the point where they represent 12 percent of the labor force today, as opposed to approximately 25 percent in England and 33 percent in Canada. The article also says that “the labor movement has achieved some early victories under Barack Obama….[He has issued an executive order] barring federal contractors from seeking reimbursement for anti-union expenditures….” That’s a wonderful thing he did, but I couldn’t believe my eyes when I read that anti-union expenditures was something a company could previously write off to the government.

For me, it sheds new light on the housing crisis. The victims of the crisis were not irresponsible people too lazy to save, but rather poor Americans sick of living in dingy apartments, excited at the prospect of something that could actually be an investment.


Ryan C said...

My rent in college town in KS was ~240 - for a decent sized place. There are other places considerably cheaper. 20-30k/year can get you the 'American Dream' depending on where you live. Not LA or Denver though. ;-)

Anonymous said...

Not Chicago either! There are places out there you would be able to afford at this income but I wouldn't consider those towns part of the American dream.

Carol Maskus said...

Actually, I think there are parts of Denver where you'd be able to afford the American Dream, if you want to live next to a meth lab.