"The Coming Collapse of the Middle Class"

This is Elizabeth Warren:

Talk starts at 4:45

Comments

[Noni Mausa]

Take the time. Watch this, I just did. It explains exactly why the middle class is in trouble and where the money has gone.

Over on Angry Bear we were discussing who can afford children, in this post: Who Should Have Children? Or, If You Have To Ask, You Can't Afford Them http://angrybear.blogspot.com/2008/03/noni-mausa-who-should-have-children-or.html

I presented this question because many contributors to this and other blogs have said the poor shouldn't have children if they can't afford them. My question was, how much is enough? and offered these possible criteria:

1. A household income greater than the poverty line for that size of family.

2. In addition, income above that level sufficient to buy health insurance for that size of family.

3. Income dedicated to a life insurance policy for the family breadwinners.

4. Savings sufficient to pay all ordinary expenses for at least a year, including maintenance of the health insurance, in case of illness or job loss.

5. In addition, factor in a savings account strictly for the post secondary education of each child in the family.

It emerged that these modest requirements amounted to something over the median US income, plus all that dedicated savings. At this level childrearing was tricky, but probably doable.

I had privately thought that our conclusion -- that half of American families couldn't afford to raise children -- was a bit extreme. Turns out from Dr. Warren's numbers, I may have been correct. I would far rather have been disproved.

Noni

[c23]

Riveting. This should really be written up for the people who won't watch an hour-long lecture.

This raises certain questions - why are housing costs up so much, especially for neighborhoods with good schools, and why do we need 18 years of education instead of 12?

[gaddeswarup]

Related http://globetrotter.berkeley.edu/people7/Warren/warren-con0.html

[reason]

wrt to 18 vs 12, it is well and truly we had a serious debate about how to do education properly. Several things about it:
1. Education is NOT just about career, we need citizens who can think clearly and rationally and have a good general understanding of the world;
2. People may need to change career several times, we need to consider how to enable that;
3. We need to consider bringing back some sort of sponsored learning process (like apprenticeship) to bring employers back into the game of financing specific learning. This has the advantage of the learning being reinforced by immediately putting newly acquired knowledge into practice. Too much learning is just designed to fill in time.
4. Testing and teaching need to have a wall of seperation between them. We shouldn't care how people learn only if they do. (Bring back Ivan Illich).
5. More people should be involved part time in teaching. Some of the skills of teachers, are specific to teaching but mostly the world is too complicated to have specialists dedicated only to teaching and expecting that to be adequate for all subjects. Teaching and learning should be integrated into our whole society, from businesses to homes to media.
6. We should break learning down modularly. Instead of the current emphasis on accredited degrees as gateways, we need to see learning as a continual personal development (and adjustment) process.
7. We need to budget for learning needs as part of our view of what is a reasonable working week. It is unfair also, to expect employers to share all of the cost, if they cannot be guaranteed all of the benefit.

[elvis]

It's dawn in America....

Dawn of the Dead!

[Real Person from the Real World]

Those who have kids get breaks sometimes, others don't. They also network with each other, and help out. Warehouse buying is gotten to be big business (Cosco, Sam's Club), while you pay ridiculous amounts sometimes for the "convenience" of smaller amounts of some item. As the Chaos mathematician in Jurasic Park said, life will find a way. It ain't easy, but people do it. If you get money for each kid from the gov't you may have more kids, or if you have a family that still involves extended family members to contribute and help with costs and care, you do it. Telling people not to have kids, is like telling a mountain to get out of the way.

[Sam Z.]

Great lecture.

Here in the UK, health care expenses haven't changed, but housing costs have, if anything, increased even more than in the US.

I think it's worth considering the coupling between two of the phenomena Warren describes: the transition from single- to dual-income households and the vast increase in the cost of housing. Middle-class people are bidding for a fixed supply of desirable housing (if not quite fixed, close to it). Once a critical mass of families become dual income, the price of such assets increases, such that it's no longer possible to independently choose to remain single-income without having to live in (e.g.) a terrible neighbourhood. So the transition to dual income in itself increases the amount families have to spend on housing.

So there's a co-ordination problem: the choices others make impact on the payoffs associated with choices indivudual families make. I suspect that what happened previously to prevent an "arms race" with families working more and more (second earner plus longer hours) to maintain their rank position was a combination of social and economic factors. On the social side a sexist perception of the correct role of women (needless to say, not a good thing in itself) limited female workforce participation, and equally there were implicit limits on working hours for men. On the economic front, unions created explicit barriers to excessive work effort. Taken together you had a de facto limit on the work effort of a typical family, which halted the arms race that might otherwise have ensued.

There is also an effect of inequality: it increases the "location gradient" for housing. Simply put, in the relatively egalitarian past (and present, in some countries) it wasn't as big a deal to not be in the very best neighbourhood. Today, location really is everything, and buyers know it.

The net effect of all of this is that while technology and globalization have greatly reduced the real cost of goods, we haven't enjoyed the fruits of this effect as much as we might otherwise have, because as families we've become locked in arms races with each other, working harder to chase scarce goods (mainly housing), in what is close to a zero-sum game. This is what explains the remarkable fact that while my mother (she's 70) marvels at how cheap everything is ("we had to save to buy a fridge"), she simultaneously thinks we as a couple work far too much. The difference for us is housing. My father could buy a house outright out of his earnings. We need to save every penny we have, both work full time and take out a mortgage which is uncomfortable to service, just to live in a nice area.

Conclusion: explicit (higher taxes, working hours limitations, hugely enhanced maternity/paternity leave, etc etc.) and implicit (changing how we view work) changes to our labour markets could yield large welfare gains.

Sam.

[Elvis]

Real Person,
Did you watch the video clip? She clearly says that items such as food and clothing (which as you say can be bought in bulk) have become smaller burdens for families.

She didn't recommend not having kids. Just that the economic world has changed and families with children are at hightened risk.

[Noni Mausa]

real person mentioned, in part: ...Warehouse buying is gotten to be big business (Cosco, Sam's Club)...

What Ms. Warren showed definitively in her presentation was that discretionary expenses -- food, automobiles and clothing, for example -- have fallen a great deal in cost the past generation. In contrast, the non-discretionary costs, like shelter, extended education for children (i.e. preschool and university), and health care, have become much more expensive (in the vicinity of double), and constitute expenses that cannot be mitigated if the family is to remain in the middle class.

One chart in particular shows that although family income has risen, the amount of slack available for savings, emergencies, etc has disappeared. More dollars are cycling through the family (largely due to the extra, obligate breadwinner) but expenses have eaten up 75% of that, leaving little or nothing for dealing with exigencies.

Companies used to talk about being "lean and mean". This is what it looks like.

Noni

[reason]

Sam Z.
You missed something out there. Something very important. More emphasis on making EVERY neighbourhood liveable. That is we need to improve public education and other public infrastructure and improve our understanding (Jane Jacobs) of the built environment. We need to replace sprawl with more economically dynamic urban environments. Seriously, we should gradually be improving the quality of housing and public infrastructure everywhere!

[Cost Matters]

The housing cost burden continues to grow greater for each successive generation. High prices are a high burden for new buyers. There is no way around that. Ever increasing home prices means that each succeeding generation has a lower standard of living, and has to work more hours.

[reason]

Cost matters...
I don't understand your comment. In fact for a very, very long time the ratio of median prices to median house prices was very stable. House prices are falling at the moment. Change lending rules and housing prices will fall pretty damn quickly. Until recently, every succeeding generation had statistically a higher standard of living. Your comment is as inaccurate as it is pointless (not exactly a positive view is it).

[save_the_rustbelt]

Getting a "no longer available" message.

[save_the_rustbelt]

http://www.youtube.com/watch?v=akVL7QY0S8A

[Scott Ferguson]

When someone compares, say, housing costs versus inflation, do they factor out the contribution of housing to the inflation rate? How does this affect the comparison. Shouldn't the inflation rate reflect the overall impact of price increasing on the median family? Some commodities will be above the line and some below. Comparing prices to income is cool but am I missing something?

[Scott Ferguson]

Oops! These aren't about prices necessarily but more about spending...
Sorry!

[dissent]

Great video. Very, very clear message, delivered with great data support.

My one comment is that it appears from this video that housing has gotten so out of line with incomes that a case is being made for a very big decline, one that would likely bankrupt our financial system - but be good in the long run for middle class families!

[James]

Some of the best thinking on Economics at Berkeley seems to come from outside the Economics Department.

[save_the_rustbelt]

Yes, I find it interesting that a law professor understands real world economics better than most of the econo-guessers who are buried in statistics without contact with the real world (does not include Mark).

[Sam Z.]

Reason

I completely agree with you. I was trying to simply describe what has happened - at least in the US and UK - rather than make a normative judgement.

What I wanted to emphasize was that (i) when families en masse move to a dual-income model, they gain in nominal terms, but gain much less in real terms because of the inflationary effect on the price of housing and (ii) inequality reinforces asset price inflation in the housing market by making location gradients steeper.

Increased inequality - in wealth, income, and the socio-cultural stratification that emerge over time - has real costs even for those lucky enough to be in the middle class. Thus, while the broad public provision of good infrastructure, facilities and education is a good thing in itself, it would also reduce the need to constantly optimize with regard to school choices, neighbourhoods and so on which I would argue has become the defining feature of middle-class life in the US and UK.

Sam.

says...

I saw a reference to the price of a house several generations ago, in the 1800's I think, also the wages of a skilled worker, like a blacksmith. If they wee typical, it used to take far fewer hours of labor to buy a house then, than it would today for someone in the middle class.

Anybody who has lived in a place with a growing population knows that the cost of land goes up as the population grows. It would be astonishing if it did not. Consider that it takes 23 acres on average to sustain a person in the U.S. (Not just food, but all resources). It is not hard to predict the effect of rising standard of living in China and other relatively poor countries.

Of course, that's barring some crisis like a pandemic that kills a large percentage of people, or economic collapse. On the other hands, global warming is causing a rise in ocean waters, decreasing the amount of land.

[Patricia Shannon]

Forgot to sign my post above.

[acerimusdux]

I wonder how much of the increase in housing prices shown here is due to the fact that we are looking at a data period which both begins and ends with a housing boom/bubble.

That is, if I take the OFHEO Housing Price Index, and CPI adjust it, it shows no real increase from about 1980 to 1997. Most of the real housing price increase here occurred beginning in 1997 (up since then 55% CPI adjusted by Q4 2006).

The HPI data doesn't start until 1975, but I believe there was also a fairly steep increase in the late 60's to early 70's.

So it's possible, now that the housing market has turned, we might be in for a decade+ of more moderate housing prices.

Now, if we can only do something about health care costs.

[Tim Worstall]

"What Ms. Warren showed definitively in her presentation was that discretionary expenses -- food, automobiles and clothing, for example -- have fallen a great deal in cost the past generation. In contrast, the non-discretionary costs, like shelter, extended education for children (i.e. preschool and university), and health care, have become much more expensive (in the vicinity of double),"

OK, Baumol's Cost Disease. Services, as average wages rise, will become more expensive in relation to manufactures.

Nothing new about this, nothing surprising, and nothing to do with anything that anyone is doing to the economy. It's a natural process.

So?

[Sam Z.]

Tim: is housing a service? The UK provides a counter-part to the US experience with healthcare costs and (until recently) university education taken out. Far and away the biggest single expense for most families is housing. People find that they cannot choose a single income strategy if they are to meet their mortgage payments. House price inflation has been dramatic. No doubt part of it will deflate in the years to come, but I don't think anyone expects house prices to fall to levels at which middle class homes will become affordable by single income families. This housing-centric story suggests that there's more at play than simply the increasing relative cost of services.

Sam.

[dissent]

"Services, as average wages rise, will become more expensive in relation to manufactures."

Uh, no. Watch the video, dude.

Domestic wages, adjusted for inflation, have NOT been rising in relation to productivity.

Wages for goods manufacture have fallen dramatically, due to outsourcing.

Thus as real costs have climbed, incomes have stagnated. The fixed portion of costs (mortgage, health insurance, education) have soared. As a result, families have less discretionary income and lower savings than they did in the 70s. As a result, for example, families with children have twice the bankruptcy rate as single folks. More children went through family bankruptcy last year than went through divorce.

You know, right wing folks are not exactly going to be convincing the public of their views and policies when they fail to keep up with facts on the ground.

[Kalapu]

I believe Warren noted that new houses are being built for the higher tier buyer. First/second time buyers are buying older higher maintenance homes. We aren't just talking cost to purchase. We are discussing living expences of housing.

It has been argued that the paradigm for housing, the suburb is simply not cost efficient. The need for two cars, the higher mortgage, the difficulty of finding good schools is all related to the migratory pattern away from urban centers.

Maybe our entire concept of life just isn't affordable for the average middle class person. This is not a liberal/conservative/neoconservative issue. Perhaps as a society we have just wandered away from reality for the last 30 or 40 years. If the average family with a couple of children is destined to fail then it is not the right path.

And this before we are forced to face extraordinary increases as energy costs double and triple. In addition as the bankers admit they have really screwed up they will of course force the cost onto the mortgage market and the tax payer.

James Howard Kunstler writes about this on his blog http://www.kunstler.com/index.html, which may be a bit to earthy for some, but which looks at the same issue from a different perspective.

Ms. Warren has hit on an essential weakness in our vision of our world. It is one we must deal with or it will just deal with itself in a very unstable manner.

[paine]

no middle class

what next

just a botom blob of homers and horse faces
and atop this jiggling mass of indolence
a creation class
and above that a post ownership society
automoton "screeching " thru v and e mail systems
13267 your fire .... 8760yz your hired .... 97811qq your fired ...your fired too 94432qq and congraulations ick 13 your hired ... reason 77 your fired ...and you six down there goofing off rifling the mail room .u six 564iou paine brothers ..your all fired
fired fired fired
zap zink zop

[acerimusdux]

To summarize:

the poor will always be with us
likewise the rich
the middle class
not so much

[ken melvin]

What's going
is because of
what's going on.

Like Prof. Warren, a lot of us in the seventies saw a future of increased leisure, ... What we missed was that all was going to go to the top. Whilst we dreamed, they made damned sure.

When I've more time I want to look at the median personal income of ~$26K. Implicitly, one half those with income receive from $0 to $26K and the half above the median receive from $26K to say a billion. Apparently, those below age 14 aren't included. Poor kids would skew it all up.

[bob]

I have a relative who is sure that things are just fine today and all this economic trouble is a result of people that just don't have character.

I'm serious.

He is heavily emotionally invested in the system.

He never reads anything.

Were he ever to stumble accross the works of Campbell he would understand that part of the definition of a system is that it is evil (because it is exculsionary).

He's uneducated to the point to where he doesn't understand that the hero role is quite often modeled on someone that fights the corrupt system.

says...

>> Like Prof. Warren, a lot of us in the seventies saw a future of increased leisure

By 1978 i was telling most of the people around me that the class war against the non-rich was kicking into high gear.

I'm not claiming i was smarter than everyone else.

Maybe i was just employed in a situation where it was more obvious.

[bob]

Thats me above

[mark]

I think we have so many business's trying to drive the stock price and profits up that we have squeezed the middle class into poverty.

[dale]

"OK, Baumol's Cost Disease. Services, as average wages rise, will become more expensive in relation to manufactures.
Nothing new about this, nothing surprising, and nothing to do with anything that anyone is doing to the economy. It's a natural process. So?"

Tim's comment strikes me as a perfect example of the difference between objectivating economic think and a thoughtful explorations of the real world economic issues that ordinary people face- such as Warren describes in her lecture. The one is useful (Warren's), the other (Tim W's), not so much.

[EE]

Awesome,

Someone just posted that food is discretionary while university education is non-discretionary, however do those people in sub-saharan africa survive?

"6. We should break learning down modularly. Instead of the current emphasis on accredited degrees as gateways, we need to see learning as a continual personal development (and adjustment) process."

We should wake up and realize that learning is actually irrelevant, and "education" is actually training for a job, a means to an end.

I want to go to college to become a...

The only to to stay competitive in the wonderous new global labor market is to go to college to get...

The people who want to learn for the sake of interest spend time at the library or take classes that do not necessarily lead towards degrees.

Few people go to college to become academics.

So ask yourself, what is it that holds down wages?

Lower productivity? Nope, not in the US.

"Competeing" against $0.42 / hr. labor? I know where I'd invest my capital, if I had any.

Economists better ratchet up the talk about Decoupling from the US: companies are not investing in people here anymore, the very people who [used to] buy their products. Companies are still not selling products in the countries in which they are made because they cost way too much.

The elite are so far out of touch with reality, they intend to sell $199 laptops to children of the third world. If I was a third world child, I would immediately use my new laptop to go onto ebay, and auction the laptop, payment by wire, and use the money to buy basic necessities.

Hell if you just gave the kids $199 they'd be so much better off.

[Noni Mausa]

EE said: ...Someone just posted that food is discretionary while university education is non-discretionary, however do those people in sub-saharan africa survive?..."

That "someone" would be me.

Perhaps I should have used a word besides discretionary. What I meant is, housing expenditures cannot be shrunk or expanded from month to month. Education cannot be bought in little slices like guilt-sized pieces of cheesecake, unless you plan to graduate the same week your kids get out of high school. And the price of health insurance cannot be negotiated or reduced much, if you can even get it. The things which have nearly doubled in cost are large, fixed, inflexible expenses which are NOT lifestyle choices.

The price of food and clothing, on the other hand, can be compressed quite a lot. The cost of these items, unlike the others, has fallen in the last generation.

The price of cars has fallen too, however family life has changed so that two earners generally need two vehicles, so the resultant cost to the family is about 60% more than the 70s.

EE: however do those people in sub-saharan africa survive?..."

They don't.

http://en.wikipedia.org/wiki/Image:Life_Expectancy_2007_Estimates_CIA_World_Factbook.PNG
http://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy

[john c. halasz]

Well, nose-rubbing and bad hair-do aside, the anti-Hillary. Not a truncated/exclusionary appeal to the sacrosanct politics of the "middle class", but a cogent statistical demonstration of why the ideology of the "middle class" is at odds with itself. Rather than the middle class being a source of safety and security that buffers and balances the economic system, it's simply another zone of rent extraction. And one of the prime areas of rent extraction is the drive to endow its offspring with "knowledge". Not to mention the beautiful ideal of "health". Such classical sentimentality. Maybe now the middle class might recognize that it's not so middling, but on the downward slope towards its "origins".

[reason]

Tim Worstall,
whether it is natural or not is surely not the issue. The issue is the financial fragility of a large group of people.

[reason]

Saying something is natural is a great marketing trick. Natural, like salmonella for instance.

[mik]

The elite are so far out of touch with reality, they intend to sell $199 laptops to children of the third world.

You are sadly mistaken. They will give el-chipo laptops to the third-worlders and will make you pay for it.
Silly you.

[Farrar]

Now we ask ourselves how to get out of the middle class trap that Warren has explained so clearly, and particularly the housing trap. I cannot believe that everyone in that trap, has become a prisoner in his/her McMansion simply due to nostalgia for some unrealistic suburban dream.

Warren made it obvious that the key is education. If middle classers feel obliged to bid up the prices of homes in "good" school districts, then it seems clear that the priority of priotities would be to equalize the quality of K-12 and preschool throughout metropolitan areas. Then perhaps families would not feel compelled to buy more house than they need, or to move ever farther out in the suburbs.

Easier said than done. Essentially, reformers will need to eliminate or reduce the power of local school districts all while retaining some parental participation in the schooling process. Maybe home schooling isn't so bad after all. Another ongoing debate that doesn't get much attention.

[reason]

Farrar...
maybe a good starting point would be a considered reply to my earliest post on this thread:
http://economistsview.typepad.com/economistsview/2008/04/the-coming-coll.html#c110150076

[anne]

"They will give -------- laptops to the third-worlders and will make you pay for it."

Gladly have we been giving fine sturdy lovely computers to people in developing nations, and gladly will we give so many more because gladly we know what decency is. Gladly we give much, and are not mere mocking monsters.

[MarcE]

>> Like Prof. Warren, a lot of us in the seventies saw a future of increased leisure
Hmm, Europe certainly went that way. Newspapers and magazines have commented for years on how US productivity growth is fueled by Americans working longer hours and how European growth is sluggish because people like their vacations too much. Is it a case of treading water on both sides of the Atlantic, only Europeans enjoy the experience more? Would be interesting to see a comparative analysis of the pressures on middle class families on both sides of the Atlantic.

[reason]

Longer working hours is not increased productivity. Increased productivity is increased output for the same amount of input.

[Farrar]

reason -

Yes, I agree wholeheartedly with your ideas. Especially that education must be a life-long pursuit, and free or nearly free all the way.

My observation was limited mainly to education in relation to the housing trap - essentially stating an obvious conclusion from Warren's demonstration.

[reason]

Farrar,
I'm not so convinced that it always must or should be free. I'm a bit radical in that I think it is possible for adults to work and study AND pay for their education at the same time, and this in fact is the desireable state of the world. The problem is that education expands to infinity (out state of knowledge is way beyond the capacity of any individual to understand), without a price, it will.

[reason]

Farrar,
what should be free is access to information - see point 4 above.

[reason]

People should read Ivan Illich - I'm serious about this, education needs to be questioned in a very fundamental way.

[reason]

P.S.
This

I'm a bit radical in that I think it is possible for adults to work and study AND pay for their education at the same time, and this in fact is the desireable state of the world.

implies that people will need more leisure time.

[cm]

reason: Productivity is (sellable) output by paid-for inputs. Who cares how much you work if it's off the (wage) clock.

[cm]

reason: On "lifelong" learning -- I for one cannot work a full-time (or close enough) job and learn something of substance outside the work.

In Germany, students are limited to no more than 20 weekly hours of work if they want to retain student status. The implied rationale is that studying anything of substance is a nearly full-time job. The largest part of the learning happens outside the lecturing hall, by doing copious quantities of homework, labs, and project work. Those that manage to somehow get through the mandatory programs with minimum effort are not the ones who take a lot with them.

The only type of "learning while working" I can see is honing/extending specialty skills on top of a solid foundation of base skills, e.g. learning additional programming languages, libraries, tools, etc. Even that typically requires sustained working exposure. Playing around with it for a while amounts to no more than fooling around, mostly.

And then what many employers want are not (just) the technical skills, they want know-how from having already done what they want you to do, preferrably bringing new expertise they don't have (i.e. poaching workers from related jobs).

For entry-level jobs they want young "uncorrupted" people who are still green when it comes to office politics, are easily herded, and are willing to please the most unreasonable demands.

It's not at all about "adult" education.

[cm]

Afterthought, in the aggregate, not just in the way of individual success stories, the only situation where people with marginal, secondary, or otherwise not first-career skills can build successful careers have been periods, industries, or regions where sustained growth of business opportunity exhausts the "primary" workforce. The latest larger such phenomena were dotcom in the West, post-dotcom offshoring to Asia, and arguably the various real estate booms of the last few years (the latter not really sustained but otherwise bearing all the marks of rapid growth). In the past, various post-war periods, expansion into new territories, or new industrial paradigms being discovered or made practical.

[Real Person from the Real World]

Again, I'll say that I am not so sure that new green labor is preferred for hire mainly because of lack of political awareness. I think the case is that they are just cheap and more ready to put up with low pay and long hours and other bs, that an older worker will not put up with. Being young, and usually healthy, they just move on, as soon as they secure another better job, unlike an older person, who may have roots and obligations. If you are free from ties, there are a lot of things that become simpler. Just like owning a home or having a baby on the say suddenly has a consultant looking for a permanent job rather than jumping around the country for each project. CM, you must be too young as yet.... politics? come on, if you think that, I have a Bridge in Brooklyn for sale, cheap!

[cm]

Real Person: I'm not disputing what you are saying. What I meant was a lacking capability to sense the political/organizational machinations, manipulations, and motivations of others, and the predictive capability to judge with some confidence how something will play out.

The reason that as you say "older" workers won't stand for BS and being taken advantage of (if they can help it) is that they can see right through it (including judging the actual ability of specific management figures to retaliate), which the greenhorns can't. Which from a management perspective is synonymous with lack of passion, drive, motivation, initiative, cooperation, etc.

As one of my associates put it, "management is the art of taking advantage (of others)".

[cm]

Real Person: In my workplace, management is only hinting, but apparently for some reason won't dare explicitly requesting, that people work on weekends. The more experienced folks who have a few years on their backs and/or have a life are generally not responding to that. What are they going to do, piss off or fire their most productive and otherwise servile and reliable enough workers, who in an emergency will resolve issues with less fumbling around and without requiring handholding all the way?

[cm]

But, they are apparently reluctant to hire this very class of people.

[Real Person from the Real World]

NO ONE, not even young workers likes the long hours and BS, but the young, being as yet unattached to roots, can quietly look for something new. CM, if you are at a job, and conditions are bad/pay low, how long do the younger "non-political" types stick around? On the other hand, the older worker has more at stack personally, and will try to reason or point to his/her rights. Visa serfs are worse off. If they look cross-eyed at someone, they can be ousted. They work at cultivating the employer until they can get that green card, then they can be just as bad. Some may be more conciliatory, because they realize the salary is a market, but even they will move on, if conditions get tough. While someone may not be "vocal" or upfront about what you call politics, it still plays a part. Meanwhile true job politics are for the permanently entrenched trying to work their way up the ladder or ready to jump ship for a leg up.

Take my employer. He is an entrepreneur, who sets everything to his advantage, a very ONE SIDED social contract. No benefits or even perks, just work, work, work, hour after hour, for low pay and no advancement. This is bad management, and bad business. I did not sign on as an CO-entrepreneur, and yet he expects to use me to help him hedge his business risk by accepting low pay and long hours to build HIS business, while he has the right to can me if things go tough on him. This isn't a business man, this is a spider who traps prey, and keeps them alive only for his own ends.

[cm]

Real Person: All I was trying to say was that less experienced (both in the subject matter and in matters of life) workers are easier to goad and not as likely to see through manipulations. Even if you judge that a proposed/requested course of action does not seem right, in order to counter it you need to conceive of a presumed-superior alternative, you cannot just say no. This is tantamount to having experience.

In the professional cultures I know, it is well understood that newcomers, esp. without prior work experience, have to invest more effort than the old hands to become proficient and build a track record, usually over a number of years (for experienced newcomers less, but still on the order of months). A number of people are more servile and malleable while they are not yet fully confident of their proficiency. That's the part that insecure, intellectually lazy, or exploitive managers like. After that, it becomes a matter of what is out there. You will only jump when you see an alternative and think it's better along some dimension(s), and by enough to justify your risk tolerance. The number of years at an employer to avoid an image as a job hopper has been pegged at about 3, but may perhaps be as low as 2.

In addition to this, I have the impression that let's just say in "some" corporate cultures people look at it as "working hard" (or creating the perception thereof) with the goal of advancement into a position where they can either "retire", do middleman work, or at least be on the giving end of the stick (basically take on a "lead" position and push work off to newly backfilled worker bees). Unfortunately that's reminiscent of a pyramid scheme, and works only for a minority, and/or as long as the business and hence the workforce is growing.

I'm probably not telling you any new insights, and neither do I intend to argue.

[Bill]

Housing wants have eclipsed needs.

1950s/1960s middle class raised families of 6 often in a 3 bedroom/1 bath, sub-1000 sqft. house.

I was raised in a big (nearly 6000 sqft.) and old (1920s) house and got to see what a money pit such mansions really are.

My family of 4 now lives in under 1500 sqft., and my kids go to private school (no need to live in the "right" public school district)

Controlling the biggest expense (housing) has let our family build a net worth in the high 6 figures on a single-earner, 5 figure salary before either parent hit age 40, even while paying for private (religious) school for our kids.

Read "The Millionaire Next Door" to see how the successful middle class controls costs.

Yes, you can control housing expense - no, you don't need 1000 sqft. per person in your household!

[lbj]

wrt education.
As long as critical thinking is banned in classrooms we will remain right where we are. And that will continue to suit the purposes of those at the very top of the social food chain.

[John]

We're all missing something: The middle class is being taxed out of existence. Between Federal, State and Local income taxes, social security, medicare, sales taxes, gas taxes, phone taxes, property taxes, etc., I figure my family is paying half of its income to the government. So my two-income family actually is a one income family -- my wife works to pay the taxes.

[anne]

"The middle class is being taxed out of existence."

Rubbish.

[Mantari Damacy]

"The middle class is being taxed out of existence."
Inflation is a sneaky form of taxation.

[Workpost]

People need to take control of their own work situations. It's difficult but it seems like there's going to be a lot fewer "jobs" and a lot more "work" to be done.

America desperately needs more entrepreneurs and people starting new, viable businesses.

[Greg]

Hey check out what the Met School in Providence, RI is doing, as well as the Big Picture Company. Lots of cool stuff based around one student at a time, real world learning, internships, mentors, and preparation for life.....

[KirkH]

I'd like to see rent, not home prices because the housing bubble probably skewed things a lot. I have a feeling the median American in a few years will be a renter.

[Patricia Shannon]

Before the Bush tax cuts, someone analized the total taxes (federal, state, and local) on various income levels and found that they all paid about the save percentage of taxes. This is because of regressive tax structures on the state and local level, esp. sales taxes.
I believe this was before the Bush tax cuts to the super-rich.

So, w/o a progressive federal income tax, we would expect the the total tax rate would be regressive.

[DOCTOR HAN SOLO]

I AM FARTING LooL361

says...

she's NOT an economist, she's a LAW professor!

[Levi Blackman]

Four years ago I worked for $7.50 an hour. Bread was $0.99, and I could live a week on $50 spend at the store.

Now I work for $7.50, and bread is $1.99, and I can live three days off $50.

So pretty much I have lost 1 day a week were I will have food to eat per year for the last four years. I am worried about the next three years.

Perhaps I should get into farming? No one can rape you on a tomato if you grow it yourself.

[Emily]

I love Elizabeth Warrens lectures and books (Two Income Trap). She is a brilliant analyst of bankrupcy law and economics. I think her comments hit true to home. I recently got out of debt and I love being debt free. I gave up all sorts of things like eating out and $4 lattes. While at the time it felt like a sacrifice, now I never miss those things. Those lattes are disgusting anyway, when I gave them up I lost a little weight. Eating at home is much more rewarding. In addition to saving money, you get to spend quality time with your family around your own table, chat freely, play your own music, and eat healthier meals. It also makes eating out the rare enjoyable activity. Driving a used car with good gas mileage is worthwhile as well. You can just as easily fit a carseat for a small child in a honda civic as you can an SUV. Making the trade three years ago is a relief at the gas pump, in spite of rising gas prices I have found that while gas prices have increased, its only about $10-14 more per month.

But I have a problem with the fact that basic necessities like health care and living expenses cost so much. A brand new ipod costs less than one months of his health insurance. And it's a basic policy. Then you have to pay additional amounts out of pocket when I need medical care anyway. Health insurance policies that don't provide adequate coverage shouldn't cost an ipod a month. My phone bill, electric bill, car insurance, and other monthly expenses combined cost less than my health insurance bill does per month. It also seems like employers and health insurance providers use your family's health conditions as leverage, which I think is discriminatory and wrong. Ok its one thing if you smoke incessantly, it's another if you get sick or injured because of an accident or something you couldn't help. It's sickening that people in this country actually believe our own citizens are not entitled to basic health care.

[David]

One thing that strikes me from the comments is - those who are sneering at the middle class and their problems, where do they fit in the scheme of things? They are probably on the same education and income levels as the despised middle classes, so consequently they can not be in the poor class or the rich class or the middle class. Being in society but not part of society, just using it for their own ends, insurgents or parasites.

[Gerard Sorme]

It's very important we not elect another Republican to the White House. We need an agenda focused on the middle class rather than a WH that's always looking out for the corporations and the richest few. Look at the energy sector: How much are we paying for gas in the U.S. today? The world's biggest oil companies are making record profits. In fact, just today Exxon reported 10.9 BILLION dollars in first quarter profits - and Wall Street was unhappy as they were expecting even larger profits(!). It's just one example - it's out of control. The free ride by the corporate state and their lackies muct end.

[Brock]

Three source of rising costs: housing, healthcare and education. Coincidence they are also horrendously over-regulated and protected from competition?

1. Regulations restricting development of housing are a major problem. The stupid rules that prevent dense (and efficient) housing in the exhurbs outside the "traditional" city centers prevent supply from being built where it will do the most good. Sure, there are McMansions going up on 1 acre plots, but they are EXPENSIVE, INEFFICIENT, and drive the need for two incomes and two cars. We need townhomes and family-sized apartments within walking or public-transit distances of food, school and other daily essentials to allow one income and one (or no) car.

2. Education is horribly protective and resistance to chance, innovation or new entry. The teachers unions and public control over the supply of education are creating the same shortages and problems we see with UK or Canadian healthcare.

3. Healthcare is not the worst of the lot, but we could be doing a lot better. Allowing State regulators to compete for providers (the way Corporate courts compete for corporations (and Delaware has won)) would drive out inefficient ones. Transparency is OUTCOMES will allow both consumers and insurers to make more informed choices about which hospitals to go to and also force hospitals to compete on the quality of the medical care rather than just the cost.

We need better (and more free) markets.

[ar-lock]

okay, we have more than our parents and their parents ever had, (health care costs more? you mean it does more.)

so why dont we have kids? our grandparents had ten! we're to self-important, and want to have sex not kids...

its a damn shame, oh well, die out, its whats good for ya.

[Gnarlodious]

It's high time we looked seriously at the Ronald Reagan "economic reforms" AKA Reaganomics and realize how much damage they did to American economics. Reaganism is a cult of economic despotism that we are just now seeing the results of. And it was sold to Americans by a handsome smiling movie actor.

What a shambles.

[Jack9]

I watched this entire lecture. I thought it was quite misleading.

I am a 32 yr old single male, no children, no college education.

First, the idea that mortgage payments are a fixed cost is just ridiculous. You can get cheaper payments by purchasing outside your ideal community and then rent for about the same in your ideal community, managing your costs while managing to build wealth by proxy. You can simply NOT have a mortgage as another option. Savings are a slower way to build wealth, but then you have a decent argument that there is downward pressure on the middle class. Moving out of the community to find cheaper housing to build wealth more efficiently is a social stigma and not the fault of anyone but the middle class individual (or family) who refuses to make sane economic decisions. You even describe this scenario when talking about bankruptcy.

The idea that 18 years of education is necessary to compete in the middle class is yet another social assumption with no supporting evidence. The middle class does not restrict entry to those with preschool education nor is it populated by those with it. Much of the data regarding education *IS* optional costs that sane people would choose to minimize.

The idea that cars would be included as a fixed cost is really quite silly. Immigrant families do fine without middle class incomes, in regards to transportation. You can buy working (2 year life span) cars for 2-5k. When you speak about cars as a cost, you are using data from people who borrow to buy new cars. Social stigma and a lack of common sense drive those numbers, not economic pressure.

The idea that debt is good has really poisoned the middle class, not the ability of the middle class to survive. The poor economic choices people are making in this regard is economic selection and does not signal a shift, but a correction. People should learn to fear debt. A much more helpful analysis would be statistics on how many people repeat economic mistakes. I suspect that number is very low.

Overall, highly misleading and disappointing lecture.

[Carl Lumma]

Her retroactive prediction that double incomes would produce more wealth is rather naive. It would produce inflation in all positional goods. Her data clearly bears that out (housing and education). The only question mark is health care (the explanation here appears to be complex...). -Carl

[Jack Vincent]

People have been duped into believing that they need a lot of money to live extraordinary lives and that children need to be highly educated to succeed. The problem is that the media and the ceaseless marketing machine has created a populace duped into believing the need to over-consume – which leads to an over importance placed on themselves.

Children are central to an extraordinary life. You need love and some education and some money. Americans think like voracious consumers that they are. And consumerism fed by the industrial revolution has created good little consumer-followers who cannot think outside the box.

If we could only see how the rest of the world lives. Take Cuba for example. It is an extreme example yet they have a much more socially advanced culture. They dance and sing and have time to laugh and play, They have little money and scarce material wealth, but they share what they have and are far more joyous than Americans and do fine raising children with next to no material resources. They have an excellent education and access to doctors is free.

It absurd to believe that we have to raise children in our image when we as Americans have one of the most deficient social cultures in the world and remain isolated in our individual custom stucco mausoleums working our way to death as our families scatter around the country in search of work to remodel the mausoleum, at the expense of the family unit.

If you want to break out of the feeling that there is some certain set amount needed to have children, stop watching television and believing the marketing around you. I am a multimillionaire who drives around a 10 year old car and wears jeans a T shirts, I have four children who do not wear designer anything and go to public schools. I plan on leaving the majority of my wealth to my favorite foundations and I will not cripple my children with it. Go to Costa Rica or any other happy developing nation that has good health care and you will see what I mean about oyr cultural defecientcies.

[Welshman]

In the UK we have a health service which is for the most part free of charge. In Wales there are no prescription charges. Apparently, because of bulk purchasing power etc., a national health service will provide cheaper and more comprehensive health care than a series of private insurances.
As a middle-class Brit, I have had two operations which together would probably have bankrupt me had I had to pay privately. You guys in the States need to have a long hard look at this!

Also, the US spends so much money on defense, but bare in mind you are defending everyone, including a large number of countries who can afford to contribute, but dont. I dont include my country in this because the UK contributes quite a bit. If you could get the rest to do their bit aswell, perhaps the savings could help in some way.

Also, house prices would be lower if banks were regulated on how much they can loan and people were not allowed to borrow more than a fixed multiple of their annual income.

says...

Welschman,

Could you give us a quick rundown on the taxes in the UK?

[David Robb]

Go to Costa Rica or any other happy developing nation that has good health care and you will see what I mean about oyr cultural defecientcies.

I've been to a handful of developing countries, some of them multiple times, and I just don't see these deficiencies you refer to. I also don't see many (important) cultural differences, nor a marked increase in happiness, nor a marked increase of people that have time to "dance and sing and have time to laugh and play".

That said, I generally don't see many differences at all in the people of different nationalities in the nations I have visited. There are just as many differences within the population of a given nation as one finds if you look at individuals in different countries. This holds true for lifestyles, for opinions, for beliefs.

There are people that like to laugh and sing and play. There are miserable SOBs. Everywhere. We all have different preferences.

I also don't see the "good health care" you refer to, at least not in places like Guatemala or Brazil. It's acceptable if that's what you're used to, but far less advanced than the health care in the USA or Japan. I've never been to Costa Rica or Cuba (would love to visit, though). Japan thus far might be my favorite country, but it's a bit too crowded; I love the countryside. I like technology, and love Physics.

If you want to break out of the feeling that there is some certain set amount needed to have children, stop watching television and believing the marketing around you.

I second that, but for a different reason than you: TV (and advertisements) will rot your brain.