America on the road to perdition

James Doran drives from Wall Street to Detroit to discover how the American Dream turned into a nightmare

Towards sundown on day one, the affluent university town of State College, Pennsylvania, brings welcome relief from the hundreds of miles of depressed landscape we have passed.

But prosperity here, too, may be under threat. Higher education in America is largely funded by student loans and the companies that provide them are also feeling the effects of the credit crunch. Applications for Federal Student Aid are up 17 per cent to nine million students this academic year, 1.3 million more than last year. At the same time, 137 lenders have dropped out of the student loan market because defaults are rising.

Students in State College do not seem too worried though: most we bumped into cheerily predicted that the economic crisis would all be over by the time they leave ‘school’. But those with a little more experience think their optimism is misguided. Waquar Ahmed is professor of economic geography at Mount Holyoke University, Massachusetts. He is an expert on the American Dream and happened to be standing outside the Starbucks in State College as we stopped for a much-needed latte. ‘The very notion of the American Dream came about in the Sixties and Seventies after the post-war reconstruction,’ he says. ‘If you look at the data after the Great Depression you’ll see that there was a decline in income disparity so more people at the lower level were able to consume. The American Dream is all about consumption.’

But, Professor Ahmed went on, the shift under President Reagan in the Eighties to a 70 per cent service economy swung the disparity pendulum back the other way. In other words, the gap between rich and poor started to widen dramatically, making the American Dream unaffordable for most people. ‘Yet the aspiration for that American Dream was still there. People still wanted to consume; it’s the American way of life. So the credit card companies and subprime lenders moved in to exploit that gap and you borrow what you need. And that’s what has led to the economic meltdown that we’re experiencing today.’