I completed the manuscript for Nickel and Dimed in a time of seemingly boundless prosperity. Technology innovators and venture capitalists were acquiring sudden fortunes, buying up McMansions like the ones I had cleaned in Maine and much larger. Even secretaries in some hi-tech firms were striking it rich with their stock options. There was loose talk about a permanent conquest of the business cycle, and a sassy new spirit infecting American capitalism. In San Francisco, a billboard for an e-trading firm proclaimed, "Make love not war," and then – down at the bottom – "Screw it, just make money."

When Nickel and Dimed was published in May 2001, cracks were appearing in the dot-com bubble and the stock market had begun to falter, but the book still evidently came as a surprise, even a revelation, to many. Again and again, in that first year or two after publication, people came up to me and opened with the words, "I never thought …" or "I hadn't realised …"

To my own amazement, Nickel and Dimed quickly ascended to the bestseller list and began winning awards. Criticisms, too, have accumulated over the years. But for the most part, the book has been far better received than I could have imagined it would be, with an impact extending well into the more comfortable classes. A Florida woman wrote to tell me that, before reading it, she'd always been annoyed at the poor for what she saw as their self-inflicted obesity. Now she understood that a healthy diet wasn't always an option. And if I had a quarter for every person who's told me he or she now tipped more generously, I would be able to start my own foundation.

Even more gratifying to me, the book has been widely read among low-wage workers. In the last few years, hundreds of people have written to tell me their stories: the mother of a newborn infant whose electricity had just been turned off, the woman who had just been given a diagnosis of cancer and has no health insurance, the newly homeless man who writes from a library computer.

At the time I wrote Nickel and Dimed, I wasn't sure how many people it directly applied to – only that the official definition of poverty was way off the mark, since it defined an individual earning $7 an hour, as I did on average, as well out of poverty. But three months after the book was published, the Economic Policy Institute in Washington DC issued a report entitled "Hardships in America: The Real Story of Working Families", which found an astounding 29% of American families living in what could be more reasonably defined as poverty, meaning that they earned less than a barebones budget covering housing, child care, health care, food, transportation, and taxes – though not, it should be noted, any entertainment, meals out, cable TV, Internet service, vacations, or holiday gifts. Twenty-nine percent is a minority, but not a reassuringly small one, and other studies in the early 2000s came up with similar figures.

The big question, 10 years later, is whether things have improved or worsened for those in the bottom third of the income distribution, the people who clean hotel rooms, work in warehouses, wash dishes in restaurants, care for the very young and very old, and keep the shelves stocked in our stores. The short answer is that things have gotten much worse, especially since the economic downturn that began in 2008.

Post-meltdown poverty

When you read about the hardships I found people enduring while I was researching my book – the skipped meals, the lack of medical care, the occasional need to sleep in cars or vans – you should bear in mind that those occurred in the best of times. The economy was growing, and jobs, if poorly paid, were at least plentiful.

In 2000, I had been able to walk into a number of jobs pretty much off the street. Less than a decade later, many of these jobs had disappeared and there was stiff competition for those that remained. It would have been impossible to repeat my Nickel and Dimed "experiment", had I had been so inclined, because I would probably never have found a job.

For the last couple of years, I have attempted to find out what was happening to the working poor in a declining economy – this time using conventional reporting techniques like interviewing. I started with my own extended family, which includes plenty of people without jobs or health insurance, and moved on to trying to track down a couple of the people I had met while working on Nickel and Dimed.

This wasn't easy, because most of the addresses and phone numbers I had taken away with me had proved to be inoperative within a few months, probably due to moves and suspensions of telephone service. I had kept in touch with "Melissa" over the years, who was still working at Wal-Mart, where her wages had risen from $7 to $10 an hour, but in the meantime her husband had lost his job. "Caroline", now in her 50s and partly disabled by diabetes and heart disease, had left her deadbeat husband and was subsisting on occasional cleaning and catering jobs. Neither seemed unduly afflicted by the recession, but only because they had already been living in what amounts to a permanent economic depression.

Media attention has focused, understandably enough, on the "nouveau poor" – formerly middle and even upper-middle class people who lost their jobs, their homes, and/or their investments in the financial crisis of 2008 and the economic downturn that followed it, but the brunt of the recession has been borne by the blue-collar working class, which had already been sliding downwards since de-industrialisation began in the 1980s.

In 2008 and 2009, for example, blue-collar unemployment was increasing three times as fast as white-collar unemployment, and African American and Latino workers were three times as likely to be unemployed as white workers. Low-wage blue-collar workers, like the people I worked with in this book, were especially hard hit for the simple reason that they had so few assets and savings to fall back on as jobs disappeared.

How have the already-poor attempted to cope with their worsening economic situation? One obvious way is to cut back on health care. The New York Times reported in 2009 that one-third of Americans could no longer afford to comply with their prescriptions and that there had been a sizable drop in the use of medical care. Others, including members of my extended family, have given up their health insurance.

Food is another expenditure that has proved vulnerable to hard times, with the rural poor turning increasingly to "food auctions", which offer items that may be past their sell-by dates. And for those who like their meat fresh, there's the option of urban hunting. In Racine, Wisconsin, a 51-year-old laid-off mechanic told me he was supplementing his diet by "shooting squirrels and rabbits and eating them stewed, baked and grilled". In Detroit, where the wildlife population has mounted as the human population ebbs, a retired truck driver was doing a brisk business in raccoon carcasses, which he recommends marinating with vinegar and spices.

The most common coping strategy, though, is simply to increase the number of paying people per square foot of dwelling space – by doubling up or renting to couch-surfers.

It's hard to get firm numbers on overcrowding, because no one likes to acknowledge it to census-takers, journalists, or anyone else who might be remotely connected to the authorities.

In Los Angeles, housing expert Peter Dreier says that "people who've lost their jobs, or at least their second jobs, cope by doubling or tripling up in overcrowded apartments, or by paying 50 or 60 or even 70% of their incomes in rent". According to a community organiser in Alexandria, Virginia, the standard apartment in a complex occupied largely by day labourers has two bedrooms, each containing an entire family of up to five people, plus an additional person laying claim to the couch.

No one could call suicide a "coping strategy", but it is one way some people have responded to job loss and debt. There are no national statistics linking suicide to economic hard times, but the National Suicide Prevention Lifeline reported more than a four-fold increase in call volume between 2007 and 2009, and regions with particularly high unemployment, such as Elkhart, Indiana, have seen troubling spikes in their suicide rates. Foreclosure is often the trigger for suicide – or, worse, murder-suicides that destroy entire families.

"Torture and Abuse of Needy Families"

We do of course have a collective way of ameliorating the hardships of individuals and families – a government safety net that is meant to save the poor from spiralling down all the way to destitution. But its response to the economic emergency of the last few years has been spotty at best. The food stamp program has responded to the crisis fairly well, to the point where it now reaches about 37 million people, up about 30% from pre-recession levels. But welfare – the traditional last resort for the down-and-out until it was "reformed" in 1996 – only expanded by about 6% in the first two years of the recession.

The difference between the two programs? There is a right to food stamps. You go to the office and, if you meet the statutory definition of need, they help you. For welfare, the street-level bureaucrats can, pretty much at their own discretion, just say no.

Take the case of Kristen and Joe Parente, Delaware residents who had always imagined that people turned to the government for help only if "they didn't want to work". Their troubles began well before the recession, when Joe, a fourth-generation pipe-fitter, sustained a back injury that left him unfit for even light lifting. He fell into a profound depression for several months, then rallied to ace a state-sponsored retraining course in computer repairs – only to find that those skills are no longer in demand. The obvious fallback was disability benefits, but – catch-22 – when Joe applied he was told he could not qualify without presenting a recent MRI scan. This would cost $800 to $900, which the Parentes do not have; nor has Joe, unlike the rest of the family, been able to qualify for Medicaid.

When they married as teenagers, the plan had been for Kristen to stay home with the children. But with Joe out of action and three children to support by the middle of this decade, Kristen went out and got waitressing jobs, ending up, in 2008, in a "pretty fancy place on the water". Then the recession struck and she was laid off.

Kristen is bright, pretty, and to judge from her command of her own small kitchen, probably capable of holding down a dozen tables with precision and grace. In the past she'd always been able to land a new job within days; now there was nothing. Like 44% of laid-off people at the time, she failed to meet the fiendishly complex and sometimes arbitrary eligibility requirements for unemployment benefits. Their car started falling apart.

So the Parentes turned to what remains of welfare – TANF, or Temporary Assistance to Needy Families. TANF does not offer straightforward cash support like Aid to Families with Dependent Children, which it replaced in 1996. It's an income supplementation program for working parents, and it was based on the sunny assumption that there would always be plenty of jobs for those enterprising enough to get them.

After Kristen applied, nothing happened for six weeks – no money, no phone calls returned. At school, the Parentes' seven-year-old's class was asked to write out what wish they would present to a genie, should a genie appear. Brianna's wish was for her mother to find a job because there was nothing to eat in the house, an aspiration that her teacher deemed too disturbing to be posted on the wall with the other children's requests.

When the Parentes finally got into "the system" and began receiving food stamps and some cash assistance, they discovered why some recipients have taken to calling TANF "Torture and Abuse of Needy Families." From the start, the TANF experience was "humiliating", Kristen says. The caseworkers "treat you like a bum. They act like every dollar you get is coming out of their own paychecks".

The Parentes discovered that they were each expected to apply for 40 jobs a week, although their car was on its last legs and no money was offered for gas, tolls, or babysitting. In addition, Kristen had to drive 35 miles a day to attend "job readiness" classes offered by a private company called Arbor, which, she says, were "frankly a joke".

Nationally, according to Kaaryn Gustafson of the University of Connecticut Law School, "applying for welfare is a lot like being booked by the police". There may be a mug shot, fingerprinting, and lengthy interrogations as to one's children's true paternity. The ostensible goal is to prevent welfare fraud, but the psychological impact is to turn poverty itself into a kind of crime.

How the safety net became a dragnet

The most shocking thing I learned from my research on the fate of the working poor in the recession was the extent to which poverty has indeed been criminalised in America.

Perhaps the constant suspicions of drug use and theft that I encountered in low-wage workplaces should have alerted me to the fact that, when you leave the relative safety of the middle class, you might as well have given up your citizenship and taken residence in a hostile nation.

Most cities, for example, have ordinances designed to drive the destitute off the streets by outlawing such necessary activities of daily life as sitting, loitering, sleeping, or lying down. Urban officials boast that there is nothing discriminatory about such laws: "If you're lying on a sidewalk, whether you're homeless or a millionaire, you're in violation of the ordinance," a St Petersburg, Florida, city attorney stated in June 2009, echoing Anatole France's immortal observation that "the law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges."

In defiance of all reason and compassion, the criminalisation of poverty has actually intensified as the weakened economy generates ever more poverty. So concludes a recent study from the National Law Centre on Poverty and Homelessness, which finds that the number of ordinances against the publicly poor has been rising since 2006, along with the harassment of the poor for more "neutral" infractions like jaywalking, littering, or carrying an open container.

The report lists America's 10 "meanest" cities – the largest of which include Los Angeles, Atlanta and Orlando – but new contestants are springing up every day. In Colorado, Grand Junction's city council is considering a ban on begging; Tempe, Arizona, carried out a four-day crackdown on the indigent at the end of June. And how do you know when someone is indigent? As a Las Vegas statute puts it, "an indigent person is a person whom a reasonable ordinary person would believe to be entitled to apply for or receive" public assistance.

That could be me before the blow-drying and eyeliner, and it's definitely Al Szekeley at any time of day. A grizzled 62-year-old, he inhabits a wheelchair and is often found on G Street in Washington DC – the city that is ultimately responsible for the bullet he took in the spine in Phu Bai, Vietnam, in 1972.

He had been enjoying the luxury of an indoor bed until December 2008, when the police swept through the shelter in the middle of the night looking for men with outstanding warrants. It turned out that Szekeley, who is an ordained minister and does not drink, do drugs, or cuss in front of ladies, did indeed have one – for "criminal trespassing", as sleeping on the streets is sometimes defined by the law. So he was dragged out of the shelter and put in jail.

"Can you imagine?" asked Eric Sheptock, the homeless advocate (himself a shelter resident) who introduced me to Szekeley. "They arrested a homeless man in a shelter for being homeless?"

The viciousness of the official animus toward the indigent can be breathtaking. A few years ago, a group called Food Not Bombs started handing out free vegan food to hungry people in public parks around the nation. A number of cities, led by Las Vegas, passed ordinances forbidding the sharing of food with the indigent in public places, leading to the arrests of several middle-aged white vegans.

One anti-sharing law was just overturned in Orlando, but the war on illicit generosity continues. Orlando is appealing the decision, and Middletown, Connecticut, is in the midst of a crackdown. More recently, Gainesville, Florida, began enforcing a rule limiting the number of meals that soup kitchens may serve to 130 people in one day, and Phoenix, Arizona, has been using zoning laws to stop a local church from serving breakfast to homeless people.

For the not-yet-homeless, there are two main paths to criminalisation, and one is debt. Anyone can fall into debt, and although we pride ourselves on the abolition of debtors' prison, in at least one state, Texas, people who can't pay fines for things like expired inspection stickers may be made to "sit out their tickets" in jail.

More commonly, the path to prison begins when one of your creditors has a court summons issued for you, which you fail to honour for one reason or another, such as that your address has changed and you never received it. OK, now you're in "contempt of the court".

Or suppose you miss a payment and your car insurance lapses, and then you're stopped for something like a broken headlight (about $130 for the bulb alone). Now, depending on the state, you may have your car impounded and/or face a steep fine – again, exposing you to a possible court summons. "There's just no end to it once the cycle starts," says Robert Solomon of Yale Law School. "It just keeps accelerating."

The second – and by far the most reliable – way to be criminalised by poverty is to have the wrong colour skin. Indignation runs high when a celebrity professor succumbs to racial profiling, but whole communities are effectively "profiled" for the suspicious combination of being both dark-skinned and poor. Flick a cigarette and you're "littering"; wear the wrong colour T-shirt and you're displaying gang allegiance. Just strolling around in a dodgy neighbourhood can mark you as a potential suspect. And don't get grumpy about it or you could be "resisting arrest".

In what has become a familiar pattern, the government defunds services that might help the poor while ramping up law enforcement. Shut down public housing, then make it a crime to be homeless. Generate no public-sector jobs, then penalise people for falling into debt. The experience of the poor, and especially poor people of colour, comes to resemble that of a rat in a cage scrambling to avoid erratically administered electric shocks. And if you should try to escape this nightmare reality into a brief, drug-induced high, it's "gotcha" all over again, because that of course is illegal too.

One result is our staggering level of incarceration, the highest in the world. Today, exactly the same number of Americans – 2.3 million – reside in prison as in public housing. And what public housing remains has become ever more prison-like, with random police sweeps and, in a growing number of cities, proposed drug tests for residents. The safety net, or what remains of it, has been transformed into a dragnet.

It is not clear whether economic hard times will finally force us to break the mad cycle of poverty and punishment. With even the official level of poverty increasing – to over 14% in 2010 – some states are beginning to ease up on the criminalisation of poverty, using alternative sentencing methods, shortening probation, and reducing the number of people locked up for technical violations like missing court appointments. But others, diabolically enough, are tightening the screws: not only increasing the number of "crimes", but charging prisoners for their room and board, guaranteeing they'll be released with potentially criminalising levels of debt.

So what is the solution to the poverty of so many of America's working people? Ten years ago, when Nickel and Dimed first came out, I often responded with the standard liberal wish list – a higher minimum wage, universal health care, affordable housing, good schools, reliable public transportation, and all the other things we, uniquely among the developed nations, have neglected to do.

Today, the answer seems both more modest and more challenging: if we want to reduce poverty, we have to stop doing the things that make people poor and keep them that way. Stop underpaying people for the jobs they do. Stop treating working people as potential criminals and let them have the right to organise for better wages and working conditions.

Stop the institutional harassment of those who turn to the government for help or find themselves destitute in the streets. Maybe, as so many Americans seem to believe today, we can't afford the kinds of public programs that would genuinely alleviate poverty – though I would argue otherwise. But at least we should decide, as a bare minimum principle, to stop kicking people when they're down.

• This essay is a shortened version of a new afterword to Barbara Ehrenreich's bestselling book Nickel and Dimed: On (Not) Getting By in America, 10th Anniversary Edition, recently released by Picador Books. © 2011 by Barbara Ehrenreich. Excerpted by arrangement with Metropolitan Books, an imprint of Henry Holt and Company, LLC. All rights reserved.