Published: May 2009
With the rise of suburban developments like Levittown came a whole new way of life as young families abandoned cramped housing in the city. "They lived not far from the malls, which became new downtowns," Lizabeth Cohen told ARW. More and more, she says, "Important events in their lives, like getting married or having kids, were marked by purchases."
But of course not everyone was able to buy a home in the suburbs. "Not everybody wanted this, and banks were very picky about who they gave mortgages to," says Cohen. The government unlocked the American dream for millions of veterans, but it often locked out African Americans by subsidizing suburban developments that barred black people.
"The government underwrote segregation," says sociologist Matt Lassiter. Indeed, starting with the Federal Housing Administration in 1934, the government refused to insure mortgages in communities "redlined" as poor or mainly minority. This effectively prevented blacks and other people of color from buying homes with an affordable mortgage, and moving up in life by getting out of the slums.
At the same time, by the start of the modern civil rights movement, African Americans were well aware of their power as consumers. The first major protest staged in the 1950s was, indeed, a consumer protest - that is, a boycott - against the bus system in Montgomery, Alabama.
Lizabeth Cohen explains: "As the civil rights movement played out, especially in the North, very often the sites of confrontation and sites of mobilization were sites of consumption. Black people felt their full participation as American citizens depended on being able to go into any restaurant and be served, to go into a department store and be able to try on clothes, and to buy a house in a suburb with good schools and not be steered to a community with a large African American population."
Cohen cautions against reducing the civil rights movement to a struggle for consumer equality. Still, she says, "Consumption was symbolic of full participation in American society, and this was increasingly a world defined by consumption. So it mattered to be able to participate fully."
The unprecedented prosperity in the postwar era led many Americans to believe that each generation would have more than the last: a better home, nicer car, more education, more security, and more stuff. By 1960, roughly 60 percent of Americans owned homes, double the percentage in the 1930s. Unemployment was low and the economy was booming. The United States had a lot to look forward to in its material future.
But the 1970s didn't deliver on that promise. The United States had spent a decade fighting a war in Vietnam while advancing major anti-poverty programs at home. The nation was deeply in debt. Then, in 1973, OPEC issued an oil embargo that shocked the nation's energy supply. Fuel prices skyrocketed. The U.S. Federal Reserve reacted to the country's economic woes with several bad monetary decisions.
The 1970s became a period of deep and prolonged inflation.
"Inflation erodes the value of your money," explains Joe Nocera, business columnist for The New York Times. "So, the dollar you have today is worth 90 cents next month because the price of things has gone up and you don't get as much for your dollar." The American dream began to cost a lot more.
By 1979, the rate of inflation was the highest it had ever been during peacetime. President Jimmy Carter's administration was plagued by the problem, as the Ford and Nixon administrations had been. In July of 1979 Carter gave a televised address. It was his fifth talk detailing the nation's economic woes and his proposed solutions. But this time, rather than offer solutions, Carter turned to the citizens and asked for their help. He said he was worried about the country's future, but his concerns extended beyond inflation. He asked Americans to consider what had become of the American dream. Carter said:
In a nation that was proud of hard work, strong families, close-knit communities and our faith in God, too many of us now tend to worship self-indulgence and consumption. Human identity is no longer defined by what one does, but by what one owns. But we've discovered that owning things and consuming things does not satisfy our longing for meaning.
Carter called on the nation, as a preacher would, to turn away from consumption and get back to founding principles. Americans had come to worship materialism. It was a moment of crisis and Carter begged the country to take a different course.
But Americans weren't buying it. The '50s and '60s had shown them a very comfortable way of life. They weren't willing to give up that hope for their kids.
In the decades that followed, Americans found other ways to pay for their dreams. They started with two major assets: their home and their retirement savings. And then they turned to Wall Street. Americans would seek their fortunes by becoming investors.
This new way of financing the dream began with an important change in how Americans viewed money. Joe Nocera explains: "In the '70s you were a fool not to pile up debt because it was a way to play inflation." Things kept getting more expensive, so it was smart to buy now - you could get more stuff for your money.
Nocera says a new generation of Americans was learning something that would stay with them the rest of their lives. "Every generation is influenced by the economic circumstances in which they live," he says. "My parents could tell me 'til I was blue in the face that debt is bad, but my experience told me debt is good. And so my generation became scornful of the fear of debt our parents had. We only experienced the good things that happened with debt."
But debt was "good" mostly because it was a way to manage runaway inflation. It was a response to the failed policies of the Carter administration, which hadn't taken effective action to bring inflation down.
President Ronald Reagan addressed this failure in his 1981 Inaugural Address. "In this present crisis," he said, "government is not the solution to our problem; government is the problem." Reagan spoke to Americans who had come to believe that government was doing more to hurt than help them get ahead.
We are a nation that has a government, not the other way around. And this makes us special among the nations of the Earth. Our government has no power except that granted it by the people. It is time to check and reverse the growth of government, which shows signs of having grown beyond the consent of the governed.
Reagan's speech signaled a dramatic break with the government-subsidized prosperity of decades past. The '80s brought a new era of personal responsibility for material wellbeing that the nation hadn't experienced since before the Great Depression.
As inflation eroded the money in people's savings accounts, Americans grew eager for alternatives. Putting money into the stock market had never been an option for the majority of Americans because even the smallest investment required big sums. But as it happened "someone invented this thing called the money market fund," says Nocera. You didn't need to be rich to get into money markets and they weren't regulated like banks were, so they offered rates of return that kept pace with inflation.
Money markets were the middle-class gateway to the stock market. People knew investing money was a gamble. But money markets were low risk; they didn't really feel like a gamble. Nocera says people were cautious at first, but as time went on, more Americans jumped in. "They'd see their neighbors doing it," Nocera says, "and they'd realize that bad things weren't happening, that these funds were in fact returning the interest rate that they said they were." Soon, Americans came to think money markets were as safe as bank accounts.
Eventually banks were deregulated to be able to compete with these funds, but by the 1980s, people had moved on to mutual funds. They were used to getting high rates of return on their money. And they didn't want to go back to plain old savings accounts.
Wall Street soon became an attractive place for another essential of the American dream: retirement. ARW economics correspondent Chris Farrell says inflation had eaten away at the value of corporate pension plans, just as it did people's savings. Retired people became poorer. Employers were struggling to pay for workers' retirement. Along came something new, the 401(k), which was much cheaper for a company to run.
"From the company's point of view," Farrell says, "what's great about the 401(k) is that the employee decides where they're going to put the money." Companies began ditching pensions for 401(k) plans, shifting the investment risk to their employees. And employees liked the idea: if done wisely, you could make more money controlling your own retirement funds. The ceiling was higher; the bottom was lower too.