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For big spending dreams, middle class pays the price

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Black Friday shoppers
Crowds of Black Friday shoppers attempt to push their way through security staff moments after the doors opened outside Best Buy at the Mall of America, Friday Nov. 25, 2011.
AP Photo/Mark Vancleave

Keeping up with the wealthy Joneses may be killing the middle class.

In good economic times, moderate income families spent big on houses and consumer items, using their inflated home equity to take on record debts. The Great Recession wrecked those dreams, leaving IOUs that may cripple households for generations.

Now some wonder if the middle class dream of upward mobility is gone. The data don't look good.

The Federal Reserve Bank of St. Louis reports U.S. households have recovered less than half of the wealth lost during the recession.

Even worse, much of that wealth recovery has come from higher stock values. Yet, many Americans bailed from the stock market the past few years as prices soared.

"Considering the uneven recovery of wealth across households," the St. Louis Fed writes in somber tones, "a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified."

What happened? The Washington Post looked at a bunch of recent reports and summed it up:

As wealthier Americans spend more on things like expensive preschools or fitness clubs or even fashion, their middle-income neighbors start spending more on these goods too — without cutting back elsewhere.

On its face, that doesn't sound so terrible. But "trickle-down consumption" can have less happy side effects ... more bankruptcies, higher divorce rates, and longer commutes. Keeping up with the Joneses takes a toll.

What's the state of middle class wealth and the consequences of the efforts to live like the one-percenters?

Charles Wheelan, senior lecturer and policy fellow at the Rockefeller Center at Dartmouth College, author of "Naked Statistics: Stripping the Dread from the Data," offers his views on The Daily Circuit.


• After the fall: Rebuilding family balance sheets
"Americans set several records in the past decade in pursuit of the American dream of homeownership. Millions, including the most economically vulnerable, assumed risky mortgages to purchase these homes and ran up their other debts. Easy access to credit, along with rapidly rising home values, let our personal savings rate plunge to its lowest level since the 1930s. Leverage was the price we paid, and are still paying." (Federal Reserve Bank of St. Louis)

• 'Trickle-down consumption': How rising inequality can leave everyone worse off
"As the wealthy have gotten wealthier, the economists find, that's created an economic arms race in which the middle class has been spending beyond their means in order to keep up. The authors call this 'trickle-down consumption.' The result? Americans are saving less, bankruptcies are becoming more common, and politicians are pushing for policies to make it easier to take on debt." (Washington Post)