The whole United States seems to be following in the direction of Merced, California – epicenter of the housing quake.

Poor Merced; The New York Times calls it a disaster. Housing prices have been cut in half. Three out of four of the houses listed for sale are foreclosures. If a seller isn’t willing to cut his price to the level of a foreclosed house, he can forget about selling it, say real estate agents.

How did this Golden State get itself into such a jamb?

The Times reports:

“...hardly anyone in Merced planned very far ahead.

“Not the city, which enthusiastically approved the creation of dozens of new neighborhoods without pausing to wonder if it could absorb the growth.

Certainly not the developers. They built 4,397 new homes in those neighborhoods, some costing half a million dollars, without asking who in a city of only 80,000 could afford to buy them all.

“Obviously not the speculators turned landlords, who thought that they could get San Francisco rents in a working-class agricultural city ranked by the American Lung Association as having some of the worst air in the nation.

“And, sadly, not the local folk who moved up and took on more debt than they could afford. They believed – because who was telling them differently? – that the good times would be endless...

“The belief that this dream could be achieved with no risk, no worry and no money down was at the center of the American romance with real estate in the early years of this decade, and not just in Merced.

“How long will the economy have to pay the price for that illusion? The experience of Merced, which rose higher and fell faster than nearly anywhere else, suggests that recovery from the national real estate debacle will be painful and protracted.”

A painful and protracted debacle would actually be a good thing for the nation. Americans would learn a valuable lesson about money – that if you want to get richer you’ve got to have more income than expenses; there’s no other reliable way. The pain would convince them to avoid goofy speculations and excessive spending. The protraction would give them time to pay off the mistakes of the past, save money, and re-jig their lives.

“I feel sorry for these people,” said an American house guest over the weekend. “They drive these big pick-up trucks...and have jobs that barely pay the minimum wage...I don’t see how they get along. And there are millions of them...”

“You can criticize the American economy for a number of reasons,”

responded a French economist. “But it has done a marvelous thing. It absorbed millions of immigrants – often with no skills, often who didn’t even speak English. The U.S. population went from about 250 million people just a few decades ago to around 300 million now. We saw what happened to Germany when it was unified. The cost of bringing the East Germans into the modern economy was very high...and it depressed the German economy for a decade. But the U.S. economy was able to provide jobs for millions of immigrants – many of them illegal – and still grow. No other economy could have done such a thing...”

Yes, that was the great achievement of the U.S. economy. It took in the tired, the poor, the huddled masses of newcomers and put them to work.

These marginal workers – slaving away at minimum wage jobs – pushed down the general level of incomes, so that the average hourly employee saw no wage gains for the last 40 years. And today, thanks also the strength of the euro, the typical employee in America today earns less than the typical Frenchman or the typical German.

But what did all these new workers in the United States do? They swept floors, stocked shelves and changed bedpans. More than that – they helped build the scaffold for the whole consumption economy. They ricked up boxes at Wal-Mart – where people can buy jumbo quantities of things they don’t need at Everyday Low Prices. They greased the grills at Appleby’s, where the hardworking, two-income families could get fat on credit cards. They cleaned pools and trimmed hedges...parked cars...replaced roofs...and lugged granite countertops all across the country.

But not only did the U.S. economy give him work; it also gave him credit.

He could spend money he hadn’t earned yet – and use it to buy a house in Merced, California. And now he’s stuck with it.