cambeiu explains "What destroyed the American dream of owning a home?"

What destroyed the American dream of owning a home?

/u/cambeiu

The normalization and then growth of the global economy in the last 60 years.

Boomers just had a super good time for a couple of decades because of circumstances that we can't repeat and many people in the US really struggle to wrap their heads around this notion.

Hey, I get it. A large and affluent middle class is the cornerstone of the American dream. A dream in which anyone with a high school diploma and hard work should easily afford a nice house in the suburbs, 2 cars and a nice vacation with the family to a cool place once a year. Americans assume that this is the way the universe should work. That things were always like this, and that Americans have the "God given right" of the American dream.

However, this reality of a exceptionally wealthy and prosperous middle class by global standards is NOT the norm or the natural way of things, but a by product of a very unique and relatively recent set of historical circumstances, specifically, the end of World War II. At the end of the second world war, the US was the only major industrial power left with its industry and infrastructure unscathed. This gave the US a dramatic economic advantage over the rest of the world, as all other nations had to buy pretty much everything they needed from the US, and use their cheap natural resources as a form of payment.

After the end of world War II, pretty anywhere in the world, if you needed tools, machines, vehicles, capital goods, aircraft, etc...you had little choice but to "buy American". So money flowed from all over the world into American businesses.

But the the owners of those businesses had to negotiate labor deals with the American relatively small and highly skilled workforce. And since the owners of capital had no one else they could hire to men the factories, many concessions had to be given to the labor unions. This allowed for the phenomenal growth and prosperity of the US middle class we saw in the 50s and 60s: White picket fence houses in the suburbs, with 2 large family cars parked in front was the norm for anyone who worked hard in the many factories and businesses that dotted the American landscape back then.

However, over time, the other industrial powers rebuild themselves and started to compete with the US. German and Japanese cars, Belgian and British steel, Dutch electronics and French tools started to enter the world market and compete with American companies for market share. Not only that, but countries like Brazil, South Africa, India, China, Mexico, Thailand, Turkey, South Korea and more also became industrialized. This meant that they were no longer selling their natural resources cheaply in exchange for US made industrial goods. Quite the contrary, they themselves started to bid against the US for natural resources to fuel their own industries. And more importantly, the US work force no longer was the only one qualified to work on modern factories and to have proficiency over modern industrial processes. An Australian airline needs a new commercial jet? Brazilian EMBRAER and European Airbus can offer you products as good as anything made in the US. Need power tools or a pickup truck? You can buy American, but you can also buy South Korean, Indian or Turkish.

This meant that the US middle class could no longer easily outbid pretty much everyone else for natural resources, and the owners of the capital and means of production no longer were "held hostage" by this small and highly skilled workforce. Many other countries now had an industrial base that rivals or surpasses that of the US. And they had their own middle classes that are bidding against the US middle class for those limited natural resources. And manufacturers now could engage in global wage arbitrage, by moving production to a country with cheaper labor, which killed all the bargaining power of the unions.

If everyone in the world lived and consumed like what the average American sees as a reasonable middle class lifestyle (i.e. drive an F-150 or an SUV, families with multiple cars, living in a house in the suburbs, high meat consumption, etc...), it would take 4.1 Earths to provide enough resources to sustain that lifestyle. But we don't have 4.1 Earths, we have just one. And unlike before, the USA no longer can outbid the rest of the world for those limited resources.

GRAPH: The U.S. Share of the Global Economy Over Time

That is where the decline of the US middle class is coming from. There are no political solutions for it, as no one, not even Trump's protectionism or the Democrat's Unions, can put the globalization genie back into a bottle. It is the way it is. Any politician who claims to be able to restore "the good old days" is lying. So yes, the old middle class lifestyle of big house, big car, all you can eat buffet, shop until you drop while golfing on green grass fields located in the middle of the desert is not coming back no matter what your politician on either side of the isle promised you.

We are going back to the normal, where the US middle class is not that different from the middle classes from the rest of the world. Like a return to what middle class expectations are elsewhere, including the likes of Europe, Japan, South Korea and Malaysia. Their cars are smaller. They don't change cars as often. The whole family might share a single car. Some families don't even own a car and rely on public transportation instead. Their homes are smaller. They don't eat as much meat and their food portions are smaller.

They are not starving. They are not living like peasants. But their standard of living is lower than what we in the US have considered a "middle class" lifestyle since the end of World War II.

Now, that is not to say that there isn't a lot of inequality in the US or to deny that policies are needed to address that inequality. But my issue with most of the "give us equality" folks in the US is that they imagine the rich being taxed so that they can finally afford that house in the burbs and the F-150 in the driveway like their parents were able to. That is NOT going to happen for the reasons I've already explained. No amount of taxation and public policy will make that happen. That version of the middle class is never coming back. Where I see public policy for wealth redistribution having an active and effective role is making healthcare more affordable, making the cities more walkable and livable so that young Americans can transition from the suburbs to smaller and more affordable homes in dense urban neighborhoods where cars are not a basic necessity to earn income. Our middle class will become more like other countries' middle classes. That cannot be changed. What we can aim for is having our social services and social safety nets more in line to what exits and is available for the middle classes of those other countries.