Where did our financial stability go?

By Jim Jubak

If the economy is so great, why do things feel so bad? If you've even asked yourself that question, read the following book.

Peter Gosselin's just-published "High Wire: The Precarious Financial Lives of American Families" is the best explanation that I've read of why a substantial majority of us feel less secure, more anxious and increasingly worried about the future even though the national economy has done so well over the past 10 to 20 years.

I've wrestled with this question repeatedly in my column during the past few years, well before $4-a-gallon gas, falling home prices and rising unemployment provided a short-term focus for our anxieties. After the current economic slowdown is over and we've returned to "normal" good times, I think we're likely to be left puzzling over this question again. In e-mails that you've sent to me over the past few years, you've phrased the worry like this:

• The average Joe and Jane are getting a raw deal.

• Our kids won't live as well as we do.

• Government and business are ruled by greed.

• The American way of life is over.

• It's all about to come crashing down on us.

• Nobody cares about hard work and thrift anymore.

However it's phrased, though, the message is the same: People are worried, really worried, about the future for themselves and their families.

The big surveys confirm that anecdotal anxiety. The Conference Board's Consumer Confidence Index, for instance, dropped to 50.4 in June. That's the fifth-lowest reading ever. Ask about the direction of the economy in coming months, and the index drops even lower: a record low of 41.0 in June, down from 47.3 in May. The index uses confidence in 1985 as its base of 100.

So right now, we're only about half as confident about the future as we were in 1985.

Per capita income is up

What's so extraordinary is that this tide of anxiety has risen during a period of extraordinary national economic growth.

In the past 10 years, from 1997 through the end of 2007, the U.S. economy has grown to $11.6 trillion from just $8.7 trillion, adjusted for inflation. That's real economic growth of about 2.9% a year. The picture looks much the same when you adjust for a growing population. Real per capita gross domestic product, which equates pretty well with per capita income, has climbed 2% a year, on average, from 1997 to 2007.

In other words, if you look at the national averages, we're somewhere between 20% and 33% better off than we were 10 years ago. So why aren't we dancing in the streets?

The pundits, yours truly included, have offered a variety of reasons:

• Incomes are a lot less equal than they used to be. In 1979, for example, the top 1% of earners had an income 9.4 times that of the average person in the bottom 90%, according to the Economic Policy Institute. By 2006, that ratio had climbed to almost 20-to-1.

• The economy has become more uncertain, with give-backs, outsourcing, off-shoring and downsizing of jobs. And that's been especially true for the relatively well-paid workers in the manufacturing economy.

• Growth in national income in the past decade went disproportionately to corporate profits and not to worker incomes. Even though nonfarm productivity rose at an average rate of 2.63% from 1997 to 2007, the average hourly wage for production workers climbed just 0.79% annually. Corporate profits captured more of the national income in 2006, the peak of the recent economic cycle, than in any other year on record.

That's all true, author Gosselin notes, but it's not sufficient to explain our deep funk. For example, while rising income inequality may have disastrous long-term effects on a democratic society, Americans have a long tradition of identifying with, rather than resenting, the rich guy. The hope has always been that someday we'll walk in those very comfortable shoes.

To understand why so many of us are so anxious and indeed deeply fearful about the future, you have to look at what happens when something -- an accident, an illness, the loss of a job -- goes wrong in our lives. The consequences of that something, Gosselin says, are a lot worse than they used to be.

Climbing higher, feeling more vulnerable

In the past three decades, Gosselin writes in "High Wire," the typical income for a family right in the middle of the U.S. economic pack has climbed about 23%. From $56,375 in the early 1970s, the income in constant 2007 dollars rose to $69,406 by the mid-2000s.

Continued: Variable incomes

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