‘So long as we talk in terms of over-consumption, we strengthen the attack on the middle’

Elizabeth Warren and Amelia Warren Tyagi respond

8 We are grateful that so many people with such diverse perspectives have engaged our work with care. There isn’t space to respond to every idea, as we would like to do, but when we read these replies together we are struck by three themes.

First, almost to a person, we all seem to agree on the central idea that, whatever their failings, middle-class families are not going broke because they are buying too much stuff. The over-consumption myth is just that—a myth. Okay, there was some last-minute finger-wagging over cell phones and lines at the mall, but no one was willing to add up the numbers and claim that this is why so many families are in trouble. Besides, a family facing $1,000 a month for health insurance is more than an iPod short of making that payment. There seems to be strong agreement that rising debt loads, falling savings rates, and too many bankruptcy filings are not simply the product of an out-of-control middle class that can’t resist another pair of Nikes.

Second, a number of commentators—including Jacob S. Hacker, Jared Bernstein, Juliet Schor, Chuck Collins, Jeff Madrick, and Robert D. Manning—focused on the role of wage stagnation and income volatility in declining family fortunes over the past generation, and many made calls for structural changes to improve wage growth. To that we say, Amen! Stagnant and unreliable wages are yet another reason why the middle class is struggling, and the issue belongs on any national agenda that seeks to improve the well-being of America’s families.

Similarly, when Mechele Dickerson reminds us that black and Hispanic middle-class families may be hit the hardest by the changes in the bankruptcy laws, we add our voice (and our research on the experiences of these families in bankruptcy) to her call for more advocacy groups to get involved on these economic issues. And when David Crockett talks about racism in family housing choices, we note that the data also show that African-American families are struggling as hard as anyone to escape failing schools. We don’t pretend that there is only one way to look at the problem of a struggling middle class, and we are glad to put a lot of approaches into the mix, so long as the baseline conclusion is consistent with the numbers: middle-class families of all descriptions are working harder than ever just to pay for basics.

Third, for the minority of commentators who acknowledge the central point but continue nonetheless to point a finger at the waywardness of the middle class, we want to ask: what did you have in mind? Marcus Cole and Jonathan Gruber chastise the middle class for clinging to the notion that someone with a good education, a good job, and two parents in the work force should be able to own a home, buy a car, purchase health insurance and decent child care, and even have a few dollars left over at the end of the day. They are certainly right that we (along with most middle-class families) do not spend a lot of time weighing the merits of renting an apartment, taking the bus to work, or giving up on sending the kids to college. But we have to wonder, would they prefer an America where home ownership is a luxury only for the rich? Where the benefits of modern medicine are available only to those who are willing to forgo quality education for their kids? If America embraces this vision, then what was once the great middle class will quickly become the great underclass, and the professors and other professionals will become the exclusive possessors of what was once available to most of our citizens.

When Gruber says that Americans are better off today, we wonder to whom he refers. He speaks of a better life with “shorter commutes” and “generous health insurance.” That may work for the rich, but what about everyone else? The number of Americans who must drive more than 90 minutes to work has nearly doubled in the last decade, and the number of Americans without health insurance seems to set a new record every time we turn on the news. Better off? We suggest that Gruber not tell that to the mother who wakes up at night wondering if paying for a Girl Scout uniform and a band instrument will mean that there won’t be enough money to cover the mortgage. Easier indeed.

Juliet Schor acknowledges that families aren’t going broke buying stuff, but she still won’t let them off the hook morally. She says that they do buy too much, and even if it is not making them broke, they are using too much of the world’s resources. On this last point we find ourselves agreeing with Schor, and we applaud her for pursuing this issue with passion. America’s middle class (along with the rest of the developed world) probably does use too much, and the environment is suffering as a result. But there is a fine line here. When Schor links her condemnation of granite countertops (which destroy the hillsides of India) with her disdain for high-priced sneakers (which have no more impact on the global environment than no-name tennis shoes), as she does in The Overspent American, it is easy for readers to jump from “buying too much” to “that’s why Americans are in financial trouble.” After all, the focus of her very famous book is spending, not taking a disproportionate share of the world’s resources.

When we shift to the question of solutions, and of how to strengthen middle-class families, many of the respondents offer programs that supplement our own proposals. However, one question seems to nag at the edge of each essay: who will pay? We want to pose this question slightly differently. America’s middle class is paying now, and we have no reason to believe that this situation will change, or even that it should. Rather, we believe that the more relevant question is whether they could pay in a more effective way. Consider the job of educating America’s children. Every failing public school in America imposes a huge cost on the children trapped in that school, but it also imposes a powerful cost on the middle-class parents who are paying a king’s ransom to escape that school by buying (or renting) homes in better school districts. Giving parents a meaningful choice among quality public schools would make middle-class families across America richer—and give parents more affordable housing options.

Similarly, right now families are paying for one third of their children’s educations, in the form of pre-school and college—a sharp decline in public support for basic educational opportunities. This is not about spending more money; it is about who spends the money. We suggest that the burden of a basic education should be spread more evenly among all Americans, parents and non-parents alike.

We can make the same point about health care: families are paying now. Some pay by going into debt to buy groceries while they keep making their health-insurance payments; others pay by living without insurance, praying that a bad diagnosis won’t put them out on the street. Working out a more efficient health-care system that spreads the risks of medical catastrophes and slows the astronomical growth in medical costs would make all middle-class families more secure.

Reining in an out-of-control credit industry would also put more money in the pockets of middle-class families. Even a small part of the $90 billion that the industry raked in last year for interest payments and fees would help stabilize tens of thousands of families. Tax incentives for middle-class families to save would reduce the odds that a job layoff or illness would send them into a complete financial tailspin, thereby reducing losses for other players in the economic system.

The list goes on, but the short version is this: families are bankrupting themselves by trying to provide the basics. We can decide that most of America no longer needs the basics, that the old middle-class dream is pass¯© for a growing permanent underclass. Or we can agree that most middle-class Americans are sensible, decent people who are not about to blow their next paycheck at the mall, and that what they need is a few sensible policies that help level the playing field.

So long as we talk in terms of over-consumption, we strengthen the attack on the middle. But if we put that myth to rest, we can create a real chance for change. <

Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard Law School. Warren and Tyagi's article is adapted from their book The Two-Income Trap: Why Middle-Class Parents are Going Broke with the permission of Basic Books, a member of the Perseus Books Group. 

Amelia Warren Tyagi worked as a consultant with McKinsey and Company and co-founded the health benefits firm HealthAllies. She lives in Los Angeles. 

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Originally published in the September/October 2005 issue of Boston Review