 Hi, Gerald Friedman, Professor of Economics, University of Massachusetts at Amherst. And we're here today to talk about the 99%. Last time we talked about Paris Hilton's dog and his mansion. Well, today we're going to talk about normal people, regular working people, middle class people, small business owners, doctors, most lawyers. One thing that distinguishes the 99% from the 1% is that the 99%, and you go pretty high up the income ladder here, earn their income. Below the 80th percentile, people earning less than $100,000. It's basically all wage and salary income. Going up to the 95th, 98th percentile, even the 99th percentile, where you're talking about half a million dollars, it's still largely wage and salary income. The 1% to distinguish, because most of their income comes from investments, rents, dividends, profits, capital gains. So for the rest, wage and salaries matter a lot, which means that even pretty high up the ladder, getting up towards the 99th percentile, people's incomes have been stagnant for the last 40 years. The median household income in the United States has basically hung around $45,000 in real dollars since the early 1970s. Goes up a little, goes down a little. Had a period of sustained growth in the 1990s when Clinton was president, and that's been it. Other than that, it's gone back down. It's been stuck. Wages have been flat, median wages. The very top CEOs have done very, very well. They now earn 400 times, even 1,000 times. I think in 2005, CEOs earned 1,000 times the average wage of people in their companies. This is for the 100 biggest companies in the Fortune Magazine Survey. So most people, and that includes people going pretty high up, have had basically no change in their income on average over the last 40 years. A group of people like doctors, no change. Lawyers, other than a handful at select firms, no change. College professors, pays down a little bit. Most people, no real change for 40 years. That said, people have increased their consumption. After 2003, there was a little bit of a blip in consumption. That was financed entirely. All of the increase in consumption in the United States over the last 10 years or so, since the end of the Clinton boom, was financed by reduced savings and by borrowing. In fact, 2005, 2006, all of the increase in consumption was financed through home equity loans. About 6% of the gross domestic product of spending in 2006 was home equity borrowings. That leads to several issues. One, of course, is the fragility of the boom we had before the current bust. This boom, after 2001, after the high-tech boom busted, 1999 to 2001, the boom was financed through borrowing and debt. That is unsustainable. And as a famous economist Herbert Stein once said, if something's unsustainable, it will come to an end. We were financing aggregate demand with borrowing. That meant we were piling on more and more debt. The debt burden on household income was rising, and that has to stop. At some point, when you're paying off your loans by borrowing more, that's not going to work. And the people who are lending you that money are going to realize it, and they're going to be in trouble themselves. So the macroeconomic consequences of the debt boom were catastrophic. And we'll talk a lot more about those later. The second piece is kind of interesting, is why were people borrowing so much? And this relates to the social nature of consumption. Because while people are the bottom 20, the bottom 40%, they were actually worse off. The bottom 20% is a lot worse off than it was 40 years ago. But these were the people who were doing the borrowing in any substantial numbers, because nobody's going to lend to them. The borrowing was being done by people in middle class households, the 40th to 95th percentiles, relatively reasonably affluent people, who were dipping into their household savings and dipping into their home equity to finance consumption that they could not finance through wages and salaries. Why were they feeling in need of doing that? I think part of it has to do with the rising social standards of consumption in America, rising standards that are also making people in general less happy than you would expect them to be given their income levels. Part of this is we're all looking at Paris Hilton and her cars and her jewelry and her doghouse. And people like her. The 1% as they've pulled away from America, they haven't disappeared into a black hole. We still see them. And they raise the bar for what is status. We don't consume to live. If it's just a matter of living, then we can really get by on a lot less. Why do we buy these things? Why do we have iPhones, iPods, computers, cars, so that we can participate in society and we can feel good about ourselves, that we are respectable, that we have status, that we're valued? As the richer becomes richer and richer, it takes more and more spending to gain that status. And there are aspects of American society that have been making it more and more expensive to participate in the community. For example, cell phones. When I was in college, my dorm room had a phone. Standard procedure. Well, my daughters go to college. They have to have cell phones. They have no phones in their dorm rooms. When I went to college, I brought a pair of paper and a pen and a portable typewriter. Nowadays, you need a computer. For my classes, and not just this one, but for my face to face classes, then I don't hand out a syllabus. You have to get it online. It's easier that way. But it means that students have to have a computer or access to a computer. And yeah, they could go to the library and use a library computer, wait in line, et cetera. And people do that. A hassle factor, lower status. When my daughter was in high school, one of my daughters was in high school, she lost her iPod. She dropped it while skiing. And we didn't know about the rice trick, put things in rice and sucks the water out. So we thought it was just a lost cause. So she had to go back to using a Walkman. You maybe even knew what these things are. But you have a CD player, a portable CD player. It was a really exciting thing when it came out. But oh my god, until she could get enough money together to get a new iPod, she had to have the indignity of having a lower status music device. It goes on. College, vacations, cars, homes, all these things are social consumption. We consume them to feel good about ourselves, to feel respectable in the face of our friends and neighbors. And all of those have become more expensive over time. At the same time that the average American's wage and salary income has not been rising. So to maintain their social consumption, people were dipping into their savings and dipping into their home equity in an unsustainable way. So that leads us to the beginnings of the great crash of 2007, 2008. And we'll pick up on there next time. Thank you very much and have a nice day.