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Third World America: One Year Later

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A year ago, I wrote a post announcing the publication of my book Third World America. As I explained at the time, and in the book, America was clearly not a third world country, but there were many troubling trends taking us in that direction. I wanted the book to serve as "a warning, a way of saying that if we don't change course -- and quickly -- that could very well be our future."

Well, twelve months on, the paperback version of the book is coming out and, sad to say, almost none of those troubling trends have been reversed -- or even addressed.

As it happens, not long before I wrote that post last year, Treasury Secretary Tim Geithner published an op-ed piece in the New York Times entitled "Welcome to the Recovery," in which he announced that "a review of recent data on the American economy shows that we are on a path back to growth." While allowing that "the devastation wrought by the great recession is still all too real for millions of Americans," Geithner concluded that, though "we suffered a terrible blow," America was "coming back." Call it a case of premature exaltation.

Of course, Geithner was far from alone in wanting to look at the country through green-shoots-colored glasses. Later that week, former Treasury Secretaries Paul O'Neill and Robert Rubin appeared on Fareed Zakaria's CNN show expressing their bipartisan agreement that no more stimulus was needed. "We're moving forward at a pretty gradual pace," said O'Neill, "but I don't think things are terrible."

Putting aside how pathetic it is to have "not terrible" as an economic standard to be satisfied with, it turns out things were, in fact, pretty terrible, and have remained terrible -- or even gotten terribler.

First, jobs:

* The unemployment rate in August 2010 was 9.6 percent. As of July 2011, it was 9.1 percent, so a slight improvement there, but still really bad -- both for the 25.1 million Americans unemployed or underemployed, and for the country. Back then, the number of those unemployed for half a year or more was 6.2 million. Now? 6.2 million.

* As of last month, the percentage of Americans participating in the labor force was down to 63.9 percent, the lowest rate since the economic crisis began -- this despite the fact that the overall labor force has shrunk by 700,000 since the downturn started.

* The percentage of American adults with jobs in August 2010 was 58.5. As of this July, it was 58.1.

* The average length of unemployment now stands at 40.4 weeks, the highest since the recession began.

* As Don Peck points out in "Can the Middle Class Be Saved?", his must-read cover piece in The Atlantic, what meager job gains the country has made have mostly been low paying. According to the National Employment Law Project, 75 percent of U.S. job growth in 2010 was from industries that pay an average of under $15 per hour.

Overall, says Dean Baker, "there is no sector showing especially strong growth right now, and with the government shedding 30,000 jobs a month, we will be fortunate if the unemployment rate doesn't rise over the rest of the year."

And it's not just jobs. By practically any measure you want to use, things are not going well.

According to a new study by the Annie E. Casey Foundation, 38 states have seen the rate of child poverty surge over the last ten years. Between 2000 and 2009, the increase has been 18 percent, with almost 15 million children now living below the poverty line. And another 31 million children are in families that are just two missed paychecks away from disaster. This is a problem that augurs very poorly for our future. "Child poverty is in some ways a leading indicator of how the country is going to be doing down the road," said Patrick McCarthy, president of the Annie E. Casey Foundation. "Nearly all of the social problems that we worry about in this country are heavily correlated with child poverty."

Likewise, the housing crisis continues to wreak havoc. Over 14 million homeowners are currently underwater on their mortgages, almost half of them by over 30 percent. Almost 6 million homeowners have already lost their homes and another 3.5 million are in danger of losing theirs. Since the market peaked in 2006, $6.6 trillion in home equity has vanished.

Our infrastructure, which I write about extensively in the book, continues to crumble. Earlier this month, the bipartisan group Building America's Future Educational Fund released a report entitled "Falling Apart and Falling Behind," which noted that America's infrastructure now ranks 15th in the world on the World Economic Forum's competitiveness ranking. In 2005, we were number one. Now we are number one in something else: we have the world's worst air traffic congestion. We're also one of the only countries in the developed world without a plan for a private-public infrastructure partnership, such as a national infrastructure bank.

"There are always excuses to delay tough decisions," said former Pennsylvania Governor Ed Rendell, one of the group's co-chairs, "but the time has come for the U.S. to commit to a long-term infrastructure revitalization plan that invests at least $200 billion a year."

In May, the Urban Land Institute published a study which estimated the U.S. needs to spend $2 trillion rebuilding our crumbling infrastructure. "Infrastructure should be part of the larger conversation about what do you want government to do and how do you want to pay for it?" said Jay Zuckerman of Ernst & Young.

As The Economist noted in April, total U.S. spending on transportation and water infrastructure is now 2.4 percent of our GDP. In Europe, it's 5 percent. In China, 9 percent. So much for winning the future.

As for our schools, they are also crumbling. Earlier this month, a group led by Mary Filardo of the 21st Century School Fund, Jared Bernstein of the Center on Budget and Policy Priorities, and Ross Eisenbrey of the Economic Policy Institute, proposed an idea called FAST!, which stands for Fix America's Schools Today. They propose to fund the much-needed repairs to our schools through the elimination of $46 billion in fossil fuel preferences. According to the LA Times, the jobs package that President Obama will unveil after Labor Day might include a provision for fixing our schools.

I hope that's true, because it certainly doesn't look like it will be happening on the state level. According to the Center on Budget and Policy Priorities, for the 2012 fiscal year, state budget cuts -- to education, health care and other social services -- will be deeper than for any year since the economic crisis began. Of 47 states that have already passed budgets, at least 38 are making deep reductions.

And with leaders who are obsessed with long-term deficits instead of the here-and-now need for growth and jobs (growth, of course, would actually lead to lower deficits), the outlook for the next few years doesn't look good. In August, Moody's lowered the estimate for GDP growth for the second half of 2011 to around 2 percent. Mark Zandi, Moodys' chief economist, predicted there would be 1 million fewer jobs in 2012 than projected earlier. Likewise, Morgan Stanley projected a growth rate of 2.25 percent for 2012.

But not everyone is getting downgraded. As I write in the book, the hallmark of a third world economy is not that everybody is doing badly -- it's that there's no middle class, and those at the two ends of the economic spectrum effectively live in different worlds. That this is increasingly the case in the U.S. accounts for the split-screen perception of the recession and the so-called recovery. For most of those in the political and media elites, it's easy to believe the recession is over. Because, in fact, for those segments of the country, it is.

As Don Peck reports in The Atlantic, according to Gallup, from May 2009 to May 2011 consumer spending for those making more than $90,000 actually went up 16 percent. For everyone else, it has remained flat. "Three years after the crash of 2008, the rich and well educated are putting the recession behind them," Peck writes. "The rest of America is stuck in neutral or reverse."

Even dollar stores that normally do quite well in downturns are suffering. Luxury stores, on the other hand, have clearly found Geithner's "path to recovery," having racked up ten consecutive months of increased sales over comparable months a year ago.

Most people are in the dollar store camp. Indeed, 75 percent of Americans believe things are going badly (a 15 percent rise from May), and 60 percent believe things are actually getting worse (up 24 percent from April).

And no, our problems aren't just about the recession. The assault on the middle class, on upward mobility, on the underpinnings of the American Dream, was well under way before the financial crisis -- it's just that it was well hidden by a multi-trillion dollar housing bubble that's not coming back. And now the damage is all too visible, at least to anybody who wants to see it.

"One of the most salient features of severe downturns is that they tend to accelerate deep economic shifts that are already under way," writes Peck. And that's why it's not just a matter of getting back to where we were before the crisis. Where we were before the crisis wasn't great. The crisis just accelerated our descent. "True recovery from the Great Recession is not simply a matter of jolting the economy back onto its former path," writes Peck. "It's about changing the path."

But changing the path requires changing how we think. The comforting (at least to some) and tired paradigm of seeing everything in terms of left vs. right has become too costly to continue. "The only way I see out of this crisis," writes Maria Kefalas, co-author of Hollowing Out the Middle, "is to tap into the wells of American compassion that we witness in the wake of disasters in faraway lands." And we've had a pretty big disaster right here.

I'm an optimist at heart, especially about the country that's my adopted home. That's why the last section of the book focuses on all the ways in which we, as individuals, can begin to change the country, even while we wait for our leaders to live up to their promises and responsibilities. We're not a third world country yet -- but if we're going to avoid that fate, we need the fierce urgency of now that has been missing in our national debate and our national actions.