Friday, April 18, 2008

The Vanishing Middle Class

Elizabeth Warren, a law professor at Harvard, gave this talk "The Coming Collapse of the Middle Class" at UC Berkeley on March 8, 2007. She lays out in detail just how the middle class has fallen into debt and runs much higher risks of bankruptcy. Her lecture focuses on data sets for 1970 and 2003 and look at a "typical" two parent, two child family and tracks the changing composition of their expenses. The surprising result in not that people are buying more "stuff" and falling into debt. Instead, the trap comes from higher housing (she explains how), higher medical costs, higher transportation costs (you need two cars if you have two workers in 2003 compared to the one in 1970), and child care costs (that did not exist with a one earner family in 1970), and higher taxes (since the second income raises the family income which means that all the added income is taxed at the highest marginal rate). She also discusses why middle class families are on the verge of bankruptcy. It is a sad tale. A full generation later (2003) and people are worse off than their parent's generation (1970):

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