A Long, Steep Drop for Americans' Standard of Living

In short, it means a less vibrant economy, with more Americans spending primarily on necessities. The diminished standard of living, moreover, is squeezing the middle class, whose restlessness and discontent are evident in grass-roots movements such as the tea party and "Occupy Wall Street" and who may take out their frustrations on incumbent politicians in next year's election.

Per capita disposal personal income – a key indicator of the standard of living – peaked in the spring of 2008, at $33,794 (measured as after-tax income). As of the second quarter of 2011, it was $32,479 – almost a 4 percent drop. If per capita disposable income had continued to grow at its normal pace, it would have been more than $34,000 a year by now.