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From a 2005 Warren article in Boston Review, co-authored with her daughter, Amelia Warren Tyagi:
There is no evidence of any "epidemic" of overspending - certainly nothing that could explain a 255% increase in the foreclosure rate, a 430% increase in the bankruptcy rolls, and a 570% increase in credit-card debt. A growing number of families are in terrible financial trouble, but despite the accusations, their frivolity is not to blame.
Americans are not straining under the back-breaking burden of financing their luxuries, but of their necessities.
A generation ago, the one-income family committed about 54% of its pay to the basics - housing, health insurance , transportation, and taxes. That is, the one-income family spent about half its income to make the "nut" - the basic expenses that must be paid even if someone gets sick or loses a job. Today, these basic expenses, including child care so that both parents can work, consume 75% of the family's combined income.
One is, of course, health care. With close to 50 million people now uninsured, for this population any medical expense much more serious than something that could have been handled by old-fashioned family doctors such as Marcus Welby, from the 1970s' ABC network drama, is going to lead to penury.
Also, instead of dividing the country into the binary poles of insured/not insured, Warren suggests a new category - the badly insured. These are those whose health insurance will peter out once the bills get very serious, leaving the family defenseless against the howling financial gales of gold plated American medical care.
But according to Warren and Tyagi, the number one greater expense these days is for housing, particularly owned, versus rented housing.
Over a generation, the average number of rooms in a home increased by 7% as average mortgage expenses increased by 69% - at a time when other family expenses were falling. The impact of rising mortgage costs has been huge. The proportion of families who are "house-poor" - that is, who spend more than 35% of their incomes on housing - has quadrupled in a single generation. Today it often takes two working people to support a mortgage. A police officer or elementary-school teacher earning an average salary could not afford to pay the mortgage of a median-priced home in two thirds of the nation's metropolitan areas.
When a family buys a house, it buys much more than shelter from the rain. It also buys a public-school system. Everyone has heard news stories about kids who can't read, classrooms without textbooks, and drug dealers and gang violence in school corridors. Failing schools impose an enormous cost on the children who are forced to attend them, but they also impose an enormous cost on those who don't. Talk with an average middle-class parent in any major metropolitan area, and she'll describe the time, money, and effort she devoted to finding a slot in a decent school. In some cases, the story will be about mastering the system. In others, it will be about leaving the public-school system altogether and opting, as middle-class parents have increasingly done, for private, parochial, or home schooling. But private schools and strategic maneuvering will only help a minority of families. For most middle-class parents, ensuring that their children get a decent education means buying a home in the small subset of well-reputed school districts
A 1999 study conducted in suburban Boston showed that two homes less than half a mile apart and similar in nearly every aspect would command significantly different prices if they were in different elementary-school zones. Schools that scored just 5% higher than other local schools on fourth-grade math and reading tests added a premium of nearly $4,000 to nearby homes ...
Consider University City, the West Philadelphia neighborhood surrounding the University of Pennsylvania. In an effort to improve the area, the university committed funds for a new elementary school. The results? At the time of the announcement, in 1998, the median home value in the area was less than $60,000. Five years later, according to The Philadelphia Inquirer, "homes within the boundaries go for about $200,000, even if they need to be totally renovated". The neighborhood is otherwise pretty much the same: the same commute to work, the same distance from the freeways, the same old houses.
And yet, in five years families are willing to pay more than triple the price for a home, just so they can send their kids to a better public elementary school…
If you're not from America and can't read between the lines here, what Warren and Tyagi are saying is that white America with kids has allowed itself to be baited into a bidding frenzy for places for their children in predominantly white schools. Since, in the vast majority of cases, American children go to school in the community in which they live, that means that the rise in US house prices, according to Warren, is all due to competition to get into those overwhelmingly white classrooms.
Warren is quick to note that this does not mean that everyone coming out of a white school is destined for Harvard, and not everyone out of a black school destined for San Quentin. There are extraordinary black-majority-enrollment schools, just as there are lackluster and uninspiring white-majority schools. It's just that white American parents (and a much smaller number of upper income black parents) are playing the percentages.
Family income rose ... because millions of mothers decided to enter the work force. Over the course of a few decades, the change has been revolutionary. As recently as 1976, a married mother was more than twice as likely to stay home with her children as to work full-time; by 2000, she was half as likely. Today, mothers are going back to work much sooner after their children are born. A mother with a three-month-old infant in 2001 was more likely to be working outside the home than a woman with a five-year-old child in the 1960s. And in 1965, only 21% of working women were back at their jobs within six months of giving birth to their first child. Today that figure is higher than 70%.
The old standard that families should spend no more than 25% of their monthly income on mortgage and other housing related expenses got blown out early; by the top of the housing boom in 2006 reports of families spending 50% or more of monthly income on mortgage payments were not uncommon.
A generation ago, the typical family owed about 5% of its annual income in consumer debt - non-mortgage debt such as car loans and credit cards. Today such debts add up to more than a third of total annual income.
Looking back on the whole enterprise, it might have been better had the 1970s parents, instead of packing up and running into the virgin suburban woods, stayed on and fought to make their communities better. Yes, things might have been better, and certainly easier, had not the American cowboy spirit of freedom and cantankerous independence called them for a round-up way out there beyond the last circumferential highway. Very few Americans know what communitarianism is; if pressed, they'd probably say it was something dirty, as if you could get venereal disease from it or something.
Over there in Beijing, David X Li must view the whole matter with delicious and exquisite serendipity. Twice now in his life he's witnessed the mad irrationality of rampaging mobs. First, as a child, during the Cultural Revolution, he witnessed crazy mobs who believed that all society's problems stemmed from education and organization. Later, he witnessed a mob of American homeowners, aided and abetted by a separate, irrational mob of Wall Street financiers (using Li's Gaussian copula) who believed all would be right just one more suburb over the horizon.