THE CREDIT ECONOMY.

One of the reasons a credit crunch is such a scary thing in the current economy is that credit -- first from houses, then from plastic -- is what's been keeping the consumer economy afloat. Some commentators look at that and sagely pronounce that it's time for Americans to learn to live within their means. Maybe so. But I think Robert Reich offers the right response:

Since the year 2000, median family income has been dropping, adjusted for inflation. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.It's not as if the typical family suddenly went on a spending binge --- buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.The "living beyond our means" argument suggests that the answer over the long term is for American families to become more responsible and not spend more than they earn. Well, that may be necessary but it's hardly sufficient. The real answer over the long term is to restore middle-class earnings so families don't have to go deep into debt to maintain what was a middle-class standard of living.

The credit economy, in other words, was not the simple product of a sudden societal yearning for plasma televisions. Rather, real wages have been stagnant, and even in decline, for some time now, even as major expenses like health care and fuel and housing shot up. Folks have smoothed that over with cash from credit. It's what Demos calls "The Plastic Safety Net." But unless incomes increase sharply in the long-run, that's not a sustainable solution.