What forces are behind that?
I think the forces behind that are the shift in economic policies that began in the 1980s toward a more deregulated economy -- an economy that offers much less protection against market forces for ordinary Americans -- you know, supply side economics and what was called "trickle-down economics." There was a shift to a less progressive tax system and a shredding of the safety net under first Reagan, then Bush. There was a slight reversal on these trends under Clinton and then a shift back toward supply side economics under George W. Bush over the past eight years.
Globalization, the loss of manufacturing jobs and the loss of unions were also part of that equation. It's a very complicated story, but it's a story that has seen the ordinary American, the median earner, lose ground pretty much consistently with some slight reversal during the Clinton years. The result of that has been that people have basically stopped saving money and went into debt. Most people have low savings or zero savings or negative savings where they borrow money and spend more than their incomes.
This has made the economy pretty fragile actually, because people are in danger of going into bankruptcy and losing their homes. I think, overall, Americans have engaged in constant spending and they've done that based on a very minimal safety net with a very high accumulation of debt.
What is the best way for consumers to borrow wisely, yet prepare for retirement given the economic conditions that we face today?
From the perspective of the individual consumer, one of the things we've seen over the last several years is that borrowing against the home is not a great idea. People were really encouraged to take out home equity loans, and the financial industry heavily marketed home equity borrowing. So despite the run up in home prices, consumers now have less equity in their homes than they did a generation ago because of borrowing against equity. The current generation of homeowners is looking at entering retirement still owing money on their mortgages, which is not how people entered retirement a generation ago. So I think borrowing against the home is proving to be an unwise form of borrowing.
People also need to use credit cards much more judiciously. Although all this borrowing and spending is good for the economy, it's not good for the individual financial net worth. People need to try to spend less and save more. Each of us individually is better off when we do that, even though the economy is better off when we're all spending like crazy.