Guest column: Americans 'skidding' down economic runway

Biden-administration economists have boasted of achieving “a soft landing” with the economy.

Federal Reserve Chair Jerome Powell and administration economists may have avoided a crash. Nonetheless, in the last three years most Americans have not only experienced economic turbulence, they are “skidding” down the economic runway.

Prices are still inflated and most wages are flat. Consequently, Americans are relying on credit cards to pay basic expenses and drowning in debt.

In the last two years credit card debt grew by 46%, while credit card balances for the largest banks grew by more than 50%. The total amount of credit card debt in the United States stands at an all-time record $1.13 trillion. The average credit card interest rate in America is 24.66%.

The four major banks — Bank of America, Citigroup, JP Morgan and Wells Fargo — are making billions of dollars from the Federal Reserve’s so-called fight against inflation.

Credit card balances for Massachusetts residents stand at an average of $8,447, fifth-highest in the nation. Worse, from the fourth quarter of 2023 to the first quarter of 2024, Massachusetts credit card balances increased by 5.2%, third-highest in the country. This is a major hit on household disposable income and drag on the economy.

Although Americans are taking on more credit card debt, 25% report that they are putting less money toward credit card payments.

Thirty-five percent of Americans admit they have maxed out their credit cards in recent years. Twenty-two percent of Americans have more than $10,000 in credit card debt, including 31% of millennials.

The Federal Reserve's recent decision to keep its federal funds rate target unchanged means that elevated credit card interest rates will not fall any time soon.

No economists who participated in a recent Bankrate survey believed that interest rates will come down substantially in 2024, and 70% believed they will stay high through 2026. Many economists believe that high interest rates are here to stay.

As inflation persists, according to the Federal Reserve of Atlanta, wage growth has for 18 months been precipitously falling. In a recent study by ZipRecruiter, 48% of companies say they have reset pay downward for many roles over the past year. Small and medium-sized businesses are substantially more likely than big businesses to impose pay cuts.

The headline unemployment rate is below 4%, but 20% of Americans with work make less than $25,000 annually. Combining these two figures, economists at the Ludwig Institute emphasize that 24% of Americans are “functionally unemployed.”

Since May 2021, according to researchers and Harvard University, 50% of home renters are cost-burdened by that rent. The price of food is up 13%, and the price of a new car is up 14%. The average price of a home is up 24% nationally, and 35% in Massachusetts. As I have shown recently, the median 30-year price of a home in Worcester increased from $575,000, to $1,150,000.

The above data explains why the Pew Research Center has found 72% of Americans say the economy is not doing well. With so many Americans drowning in credit debt, it is easy to understand why 60% of Americans have a negative view of banks and financial institutions.

The Federal Reserve’s attempt to bring down inflation regardless of the pain caused to working Americans has enriched banks, landlords, corporations and the wealthy. Meanwhile, the majority of Americans have taken a significant financial hit. Too many Americans can’t afford a home. Most American renters are cost-burdened by rent. Many Americans are buried in credit card debt.

Eighty-five percent of Americans believe corporate greed is part of the cause of inflation. I argued in a past column that although corporate profiteering did not cause the inflation increase in early to mid-2021, it has been driving the persistence of inflation since the fourth quarter of 2021. A recent economic study found that 53% of U.S. inflation has been due to corporate profiteering.

A recent survey found that American voters believe President Biden needs to be more forceful toward price-gouging corporations as a way to bring down prices at the gas pumps, grocery stores, pharmaceuticals and health needs, and in other areas of the U.S. economy.

Economists Robert Reich and Dean Baker have been important voices opposing corporate profiteering, along with Massachusetts Sens. Elizabeth Warren and Ed Markey.

Sen. Warren has been an important voice to rein in unreasonable credit card late fees and penalties. New England Sens. Sheldon Whitehouse and Jack Reed of Rhode Island, Bernie Sanders of Vermont, Warren and Sen. Jeff Merkley of Oregon have promoted legislation that would allow states to cap consumer and credit card loan interest rates.

For 99% of Americans, the interest-rate cure is no better than the inflation disease.

Hans G. Despain is professor of economics and chair of the honors program at Nichols College.

This article originally appeared on Telegram & Gazette: Hans Despain on US corporate profiteering and credit card debt