The Modern Day Poverty Syndrome
While I was growing up my family had just one car, one television set, one radio, record player, camera, refrigerator, toaster and cooking stove. Readers will know what kind of arsenal of electrical appliances and electronic gadgets today's households are littered with, especially if they have children. My point is that, as technology has progressed and as standards of living have changed (I am doubtful that they have risen much in the Western world), the cost of the basket of goods that one requires in order to participate in this "new economy" has vastly increased, so that, along with soaring healthcare, education, and insurance costs, there is a very heavy burden placed on anyone who isn't seriously rich. In this respect I have just read a recently published book, The Two Income Trap, by Harvard Law School professor Elisabeth Warren and Amelia Warren Tyagi (Basic Books, 2003) who explain "why middle-class mothers and fathers are going broke." According to Elisabeth
Warren, who conducted extensive research on the subject: " Consider a few facts. Our study showed that married couples with children are more than twice as likely to file for bankruptcy as their childless counterparts. A divorced woman raising a youngster is nearly three times more likely to file for bankruptcy than her single friend who never had children. " Over the past generation, the signs of middle-class distress have continued to grow, in good times and in bad, in recessions and in booms. If those trends persist, more than five million families with children will file for bankruptcy by the end of this decade. This would mean that across the country nearly one in seven families with children would have declared itself flat broke, losers in the great American economic game. " Bankruptcy has become deeply entrenched in American life. This year [Ed note: 2003], more people will end up bankrupt than will suffer a heart attack. More adults will file for bankruptcy than will be diagnosed with cancer. More people will file for bankruptcy than will graduate from college. And, in an era when traditionalists decry the demise of the institution of marriage, Americans will file more petitions for bankruptcy than for divorce." According to the authors, it is not over-consumption that is driving many middle-class families into bankruptcy, but the lack of a safety net. Middle-class families don't qualify for all kinds of programs that are available to the poor. Moreover, the family safety net no longer exists for the modern two-earner couple, which makes them "actually more vulnerable than the traditional single-breadwinner family." Professor Warren explains that a generation or so ago, the typical family consisted of the father being responsible for the economic health of the family, while the mother fulfilled roles such as homemaker or helpmate. The mother's role was, in the words of the authors, the one of a "careful guardian of what her husband brought home" and "if her husband was laid off, fired, or otherwise left without a paycheck, the stay-at-home mother didn't simply stand helplessly on the sidelines as her family toppled off an economic cliff; she looked for a job to make up some of that lost income. Similarly, if her husband had a heart attack and was expected to stay home for a while, she could find work and add a new income source to help the family stay afloat financially. A stay-at-home mother served as the family's ultimate insurance against unemployment or disability-insurance that had a very real economic value even when it wasn't drawn on." The problem with the two-income family is that it doesn't plan its financial commitments geared to a single income by saving the extra income that is derived by the mother. According to Warren, "millions of two-income families used that second income to purchase opportunities for their children - a home in a safe neighborhood with good schools, a comprehensive health insurance policy, two reliable cars, preschool, and college tuition. They made long-term commitments to ongoing expenses - and they counted on both incomes to make ends meet." So, when one of the members of a two-income family loses his or her job, the safety net (the mother entering the workforce) that was available to the single-breadwinner family is no longer available. And once the combined income of the two-income family collapses as a result of one member losing his or her job, "the modern couple doesn't have a prayer of making ends meet." The Two Income Trap, which is, incidentally, a highly readable book and saddening at the same time, struck a chord with me. As I suggested above, the high and continuously rising cost of living in the Western industrialized countries has created something I call modern-day poverty, or poverty in affluence, whereby a large number of middle- and even upper-middle-class families have very little left by the time they have paid for their mortgages, taxes, insurance premiums, food, and children's education. These families may have a combined income of 70, or even 100, times that of my gardener in Chiangmai, who earns US$150 per month (but would do the job for US$100 per month), but, despite their relatively high incomes, they are highly vulnerable in the event that one member is laid off or can no longer work for whatever reason. While I am fully aware that those of my readers who are either prospering in the financial sector or are seriously wealthy don't have the financial problems that middle-class families have, I am mentioning this "modern-day poverty" syndrome because I simply don't buy the argument - repeatedly advanced by economists and strategists at investment conferences - that the U.S. consumer, or for that matter any average consumer in the Western industrialized countries, is in "great shape." This should concern all of us who are fortunate to be financially independent, because modern capitalism has created a widening wealth inequity whereby a small sector of our advanced Western societies is living in style, while most families are increasingly dependent on asset inflation (notably in real estate) which enables them to take on additional debts in order to maintain their standard of living. At the same time, it ought to be clear that the poor, who don't own any assets, have become totally disenfranchised, since with home prices continuously rising their ability to purchase them has diminished. The "two-income trap" is a sobering and saddening fact of our modern society. Moreover, after having recently visited Argentina and seen first-hand the decline of a formerly rich country, I am deeply concerned about the economic future of the West. Having said that, no matter how unappealing the economy might be, for investors and speculators, opportunities for substantial capital gains will still present themselves from time to time. They are simply that much harder to identify. Regards, Editor's note: Dr. Marc Faber is the editor of The Gloom, Boom and Doom Report. Based in Hong Kong for over 20 years and now living in Thailand, Dr. Faber has long specialized in Asian markets and advised major clients seeking down- and-out bargains with deep hidden value, unknown to the average investing public. Dr. Faber is also a frequent contributor to Strategic Investment. If you'd like to follow his current analyses and learn how to apply them, see: Strategic Investment http://www.agora-inc.com/reports/DRI/china313/ |
I have just returned to Thailand from several trips, which took me
to the Middle East, Europe, Argentina, the U.S., and Japan. It
struck me
during my travels that there are very few bargains at present in
the various investment markets, and that in most Western industrialized
countries,
the prices, or the cost of living, are very high indeed. It is true
that for most manufactured goods prices have come down, but the
cost of the
basket of goods that people have become accustomed to, and in many
cases actually require, in order to work and to function in today's
modern
society has risen considerably.