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Old 04-04-2008, 07:16 PM   #21
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OK, let's say the answer is to become just like France. I could actually get into that. Wine, women, food, and art! And free nannies for all of the oppressed middle class families!

All we have to do is agree to a 48% tax rate. And sucky investment returns. Who's with me?!
It's really not to your advantage to take an extreme either/or position on such an important topic. There's no reason why going back to the tax rates we had during the Clinton admin. will result in a social system like France, with a 48% tax.

In addition, to respond to NotMuchLonger, we already have redistribution of wealth. And much of it is redistributed to corporations, farmers, and others who are not poor.

Also, the best employee benefit programs are enjoyed by the military. This is a long standing American redistribution of wealth through taxes. Is that wrong as well?

And why does a more equitable tax structure necessarily result in a lower returns in the stock market? It seems to me that we have a big mess in the markets at the moment, partially as a result of the conservative policies of the Bush administration. Can't blame it all on them because captains of finance had a hand in it, and all down the line to mortgage borrowers.
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Old 04-04-2008, 07:54 PM   #22
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It's really not to your advantage to take an extreme either/or position on such an important topic. There's no reason why going back to the tax rates we had during the Clinton admin. will result in a social system like France, with a 48% tax.
There's no reason to believe that Clinton-era tax rates will "fix the problem."

Are the problems with the low savings rate, required double income earners, cost of child care, etc a post-Clinton phenomenon?

I can believe that some portion of the middle class is in trouble. I like the idea of a safety net for those who don't have the financial means to access essential services, but I don't think that's what we're talking about here.

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And why does a more equitable tax structure necessarily result in a lower returns in the stock market?
Taxes are a drag on the economy, but I was thinking mostly about reduced consumption. Our middle class isn't saving. If they want to move back from the "precipice" then they need to reduce consumption and increase saving.

That's exactly what the Japanese did when their bubble popped and reduced the net worth of everybody in the country. They got in trouble, so they cut their consumption and increased their savings rate.

The result was a dismal local economy and poor investment returns for almost 20 years now.

FWIW, I bring up France and their high tax rate just to see where your threshold for pain is to "fix the problem." And I use quotes there because I'm not really convinced that there is a problem that needs fixing for the middle class.

Someday, there may be a real problem. Someday, we may decide that everybody needs a serious safety net in this country. If that day comes, I don't see any way around the issue of *much* higher taxes and a much higher drag on the economy.
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Old 04-04-2008, 08:11 PM   #23
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There's no reason to believe that Clinton-era tax rates will "fix the problem."

Are the problems with the low savings rate, required double income earners, cost of child care, etc a post-Clinton phenomenon?

I can believe that some portion of the middle class is in trouble. I like the idea of a safety net for those who don't have the financial means to access essential services, but I don't think that's what we're talking about here.



Taxes are a drag on the economy, but I was thinking mostly about reduced consumption. Our middle class isn't saving. If they want to move back from the "precipice" then they need to reduce consumption and increase saving.

That's exactly what the Japanese did when their bubble popped and reduced the net worth of everybody in the country. They got in trouble, so they cut their consumption and increased their savings rate.

The result was a dismal local economy and poor investment returns for almost 20 years now.

FWIW, I bring up France and their high tax rate just to see where your threshold for pain is to "fix the problem." And I use quotes there because I'm not really convinced that there is a problem that needs fixing for the middle class.

Someday, there may be a real problem. Someday, we may decide that everybody needs a serious safety net in this country. If that day comes, I don't see any way around the issue of *much* higher taxes and a much higher drag on the economy.
Thanks for the interesting reply. I agree with your assessment of the effect on the economy of middle class reduction of consumption. Unfortunately, that will likely happen once the fog of denial rises. It's rising now with the housing crisis.

I think we need a few serious safety nets, such as universal health insurance and viable social security. To create/protect these safety nets will require more taxes, and drastically less government spending. I wonder if our society is willing to make the sacrifices. I doubt it at this point. None of the presidential candidates have addressed social security viability in a serious manner.

I think the fog is probably still too thick. Once people see their formerly middle-class grandma and grandpa living hand to mouth they might start demanding that government keep its promises.
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Old 04-04-2008, 08:23 PM   #24
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Good summary, Babe. I'd add:

People in the middle class can't afford to help those in poverty, and people in poverty have very little chance of migrating into the middle class. There are more rich people.
I would disagree with what you say. Although my wife and I are comfortable in retirement (although definitely middle class), we continue to contribute to charities which suport folks less well off. Always have and (hopefully) always will. From what I read about the percentage of incomes people contribute to charities (although I admit not are all to those in poverty) the rate of charity has remained steady.
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Old 04-04-2008, 09:38 PM   #25
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I would disagree with what you say. Although my wife and I are comfortable in retirement (although definitely middle class), we continue to contribute to charities which suport folks less well off. Always have and (hopefully) always will. From what I read about the percentage of incomes people contribute to charities (although I admit not are all to those in poverty) the rate of charity has remained steady.
The point made in the lecture was that because middle class families are strapped now with just their necessary expenses they are not anxious or willing to support legislation that would , for example, tax more to support financial aid to low income college students. This is the main way that poor people rise up into the middle class --through higher ed. That avenue is closing off to them as higher education has become increasingly more expensive, even too expensive for the middle class now!

The lecture was not about giving to charity. It's about how the middle class is under financial pressure, so much so that it is crumbling. When the middle class crumbles, the reprecussions will crush those in poverty.

I really recommend that people listen to the lecture. It's very well done and quite enlightening.
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Old 04-04-2008, 10:00 PM   #26
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I'd like to point out that Prof Warren is talking about a very specific group of people - median income couples with two children at home.

Unfortunately, she uses the word "class". The problem is that lots of high income people like doctors consider themselves hard-working members of the "middle class", but their incomes are way above Warren's families. The high income people are doing fine, she's talking about the problems with the median income.

And, she isn't talking about retired people. Her argument is that it's hard to be parents of young children in today's economy.
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Old 04-05-2008, 03:48 AM   #27
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Independent, while she uses the mom/dad/2 kids as it is the most common family "format"... many of her points could be made for singles, those with above-average income, AND retirees.

People on this board are pretty well off.. and I see many struggling with care of parents.. or in some cases partners, or even children or grandchildren who are ill or need care. If a couple (gay or straight, kids or no kids) NEEDS two incomes for a middle-class lifestyle.. they are behind the 8-ball if anything happens, period. They are still further "behind" than their 1970s analogs, and there has been REgression rather than PROgression. Increased productivity, etc. has not brought increased wealth or leisure or security over the last 30-40 years, to the extent that we have been led to believe.

You ask "and the myths are?" Uhm... the myths are that people have overextended themselves primarily due to frivolous consumer habits (SUVs, fancy clothes, etc.). I thought that was pretty obvious.

Twaddle, you have a pretty vivid imagination if you thought either I or the presenter said anything like "oh, the humanity!". Nor is it a question of how to "keep assets inflated".

When you ask "what is the problem?" I have to wonder whether you actually watched the presentation. The problem is.. what we imagine, and what most people, Americans in particular, desire to achieve --the middle-class lifestyle of relative comfort and relative security-- is at the brink of extinction... a kind of endangered species. Now I don't recall any political nostrums urged by the presenter. We are all free to have our own opinions on 1.) WHETHER government should address this and, if so.. 2.) HOW gov. should address this. She is just presenting a wealth of facts that challenge some of our more complacent collective assumptions.

You're doing just what I said NOT to do in the OP.. focusing on the words "safety net" and assuming this means only heinous taxes and expanding the dole. The larger sense of "safety net" could come from rising wages, as well.. getting them back in line with prices. The "middle class" can only absorb so much before it breaks; that's the point.
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Old 04-05-2008, 06:16 AM   #28
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US Manufacturing jobs built the middle class. As manufacturing went away, other forces helped "prop up" the middle class:
  • "Mom going to work" added to family wealth while individual wages eroded, then
  • Imported goods from low wage coutries kept US purchasing power growing despite flat/declining real wages, then
  • Mortgage equity withdrawl from inflated houses kept the middle class party going.
What's left to prop up the middle class ?

Here's a link showing income distribution by country. Below it is link of GDP per capita for countries. Seems the richer a country, the more equitable the wealth distribution.

However, not sure the "causality" - what causes what...

Image:Gini Coefficient World Human Development Report 2007-2008.png - Wikipedia, the free encyclopedia
Gini coefficient - Wikipedia, the free encyclopedia

GNP per capita (wealth distribution) @ Countries of the World
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Old 04-05-2008, 06:30 AM   #29
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I suspect that just about every poster on this board would qualify as "middle class" under most definitions of middle class.

I would say that this board is skewed toward the upper middle class....

What IS above the upper middle class Because we have a good slice of them here also...
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Old 04-05-2008, 07:07 AM   #30
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Great lecture! thanks for posting. It doesnt change any of my beliefs - it reinforces my belief that a person or family's prosperity is simply their own responsibility. It should not be government's responsibility to subsidize a portion of society that is hell bent on keeping up with the Jones's.

The presenter brings out a pattern of increasing consumption.

1. Car costs (per car) are essentially less now than in the 70's, but car costs per family have increased. This is because middle class families now have two (or several) cars whereas a 70's family had one car.

2. Education costs are up because the middle class now believes that college and pre-school are required in order to get a good job. And families now pay for 100% of this extra education. In the 70's, the middle class thought that a high school education was enough.

3. Housing costs for families with children are up. This is partially due to bigger homes and homes near good schools having a higher price tag.

Almost all of the key points of the lecture reference cost increases of non-necessities. The middle class needs cut consumption and LBYM.
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Old 04-05-2008, 08:12 AM   #31
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Fantastic post. Great information with some factual information.

I think what this points out is the need to live within your means.

Some of the problems of these people were avoidable. They could have purchased a smaller house and likely less expensive vehicles, etc...

Child care is needed if both parents work.

Health care costs are a bit unavoidable.


What Warren points out that clarifies the issue is that many families living above their risk adjusted means. The risk being one of the income sources stops.

The only issue that I believe needs to be addressed in some way (by the govt) is Health Care... It is the one thing that is a bit out of your control that can bankrupt you.

All of the other issues are under the control of the family. What they need is education on the issues and personal finance. I would be all for government helping in some way to educate people on the issues.
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Old 04-05-2008, 08:35 AM   #32
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I think that there are some truths in the piece but be careful. Yes home costs are up but...

Avg. home size 1970 1440 sq. ft
Avg. home size 2004 2330 sq. ft

Average expectations have grown for what is considered normal.
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Old 04-05-2008, 09:09 AM   #33
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Extra cars and housing might seem to have elements under the average person's control. But 2 jobs pretty much means 2 cars unless you are one of the minority of families that can live/work in urban areas with good public transit. If the jobs are in the suburbs or exurbs, thither one must go. To communities with 1-acre zoning.. single-family zoning.. minimum home size.. that don't allow shops and residences together, etc. These are planning issues.
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Old 04-05-2008, 09:47 AM   #34
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Independent, while she uses the mom/dad/2 kids as it is the most common family "format"... many of her points could be made for singles, those with above-average income, AND retirees.

People on this board are pretty well off.. and I see many struggling with care of parents.. or in some cases partners, or even children or grandchildren who are ill or need care. If a couple (gay or straight, kids or no kids) NEEDS two incomes for a middle-class lifestyle.. they are behind the 8-ball if anything happens, period. They are still further "behind" than their 1970s analogs, and there has been REgression rather than PROgression. Increased productivity, etc. has not brought increased wealth or leisure or security over the last 30-40 years, to the extent that we have been led to believe.

You ask "and the myths are?" Uhm... the myths are that people have overextended themselves primarily due to frivolous consumer habits (SUVs, fancy clothes, etc.). I thought that was pretty obvious.
One of the "myths" that I've read is that since the US GDP per capita has been going up, "most people" are doing pretty well. People who promote this often look at mean (instead of median) incomes, and at family incomes, without noting the additional workers. It was easier to find pieces like this a year ago than today, but I'm sure I've read them.

Another "myth" is that we've got a complete disaster. People can't possibly live as well as their parents.

I don't believe either.

Prof Warren paints families as struggling to hold on while they are tossed about by forces beyond their control. There is some truth to that. Real wages for males have been about flat for the last 30 years. Medical care costs really have gone up faster than most other expenses. Both of these are beyond the control of families.

But then she says that savings rates are down. That's not beyond people's control. Her suggestion is that people are buying essentially the same things they did a generation ago, but they have to spend 101% of their (two) incomes to do that. I'm skeptical.

I wish I could spend a couple days with some median one income families in 1970 and see where they lived, what they drove, what they ate, etc. and then do the same thing with the median two income families in 2003. My thought is that things which used to be "nice to have" are now "neccessities".

I'm old enough to remember 1970, in fact I got married and bought a car that year. I look around today and the average American "car" seems bigger, more powerful, with more gadgets than what we had then. Warren says that Americans are spending a lower percent of their income per car. She doesn't say that in spite of this they are getting nicer cars. In 2003, automakers had big rebates on their compact fuel efficient cars because nobody wanted to buy them. If people were content with the basic cars from a generation ago, they'd be spending even less today.

My impression is that this is true about most things. We're spending a lower percent of our incomes on food and clothes, but we're still getting "better" (more of what we want, not necessarily healthier) food and clothes.

I think part of the issue is expectations. People really expected to do better than their parents. After all, that had always been the American experience. And they thought that if they had two incomes, they should do a lot better than their parents (Warren says this is what she expected, too). But it didn't happen. People are working more hours, and getting just modest gains in material goods. That feels "wrong".

But I don't see that they're doing a lot worse, just not a lot better. People spend their entire incomes and go into debt to afford the things they think they should be able to afford instead of settling for the things they really can afford. Then they are at risk for the first financial bump in the road.
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Old 04-05-2008, 10:27 AM   #35
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I think that there are some truths in the piece but be careful. Yes home costs are up but...

Avg. home size 1970 1440 sq. ft
Avg. home size 2004 2330 sq. ft

Average expectations have grown for what is considered normal.
Yes, I noticed she was careful to frame the stats in a way that supported her "crisis" theory.

She defined home size in terms of number of rooms rather than square feet. And she defined increasing costs as percentage of income, without noting that family income had gone up in real terms.

And cost of housing is at the center of her "crisis," but she failed to note that home ownership rates have gone up considerably.

My only question about all of this is her motivation. What would motivate somebody to create a "crisis" with no identifiable problems and no identifiable solutions? Has she written a book yet?
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Old 04-05-2008, 10:48 AM   #36
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I agree with the lecturer, but I too wonder what the consequences of losing the middle class are.
Mexico. You get Mexico, if you lose the middle class.

I watched all but first five minutes. I liked the lecturer. I still think if you LBYM you can make it. I still think that taxes are too high. Are taxes considered a "basic expense"? What's so bad about keeping your car longer before buying another one? Bankruptcy, although socially degrading, is a way out of your financial responsibilities. People divorce and go bankrupt because they can. I remember when neither was socially acceptable, and you did your best to avoid either.

LBYM. That's the solution.

BTW. I've heard that there are 75 million U.S. homeowners and there are only 2 million involved in this sub-prime mess. If that's so, well, the "crisis" is not that bad.

The lecture got me to order her book "The two income Trap" from the library.
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Old 04-05-2008, 11:05 AM   #37
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Real wages for males have been about flat for the last 30 years.
Could be, but she was talking about 2-earner households.



And here's the home ownership rate:



Clearly a lot of people bought homes they couldn't afford recently, but with the recent increase in home ownership, I think that represents a lot of people wishing to live the middle class lifestyle without having a middle class means.

I'm sure the middle class, as defined by home ownership, will shrink, but it'll probably just get back to the old trend line.
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Old 04-05-2008, 11:08 AM   #38
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Mexico. You get Mexico, if you lose the middle class.

I watched all but first five minutes. I liked the lecturer. I still think if you LBYM you can make it. I still think that taxes are too high. Are taxes considered a "basic expense"? What's so bad about keeping your car longer before buying another one? Bankruptcy, although socially degrading, is a way out of your financial responsibilities. People divorce and go bankrupt because they can. I remember when neither was socially acceptable, and you did your best to avoid either.

LBYM. That's the solution.

BTW. I've heard that there are 75 million U.S. homeowners and there are only 2 million involved in this sub-prime mess. If that's so, well, the "crisis" is not that bad.

The lecture got me to order her book "The two income Trap" from the library.
Taxes too high? Well get used to higher ones in the next few years. The really rich wont really care. The slightly rich wont really care. However the people who are striving to get "rich" will be the ones who will care. To subsidize all the people with their hands out. Thats what you will get with someone like Obama massive wealth redistribution. Cripes Id take 8 years of Hillary over that guy.
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Old 04-05-2008, 11:14 AM   #39
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I would say that this board is skewed toward the upper middle class....

What IS above the upper middle class Because we have a good slice of them here also...
The Wikipedia gives the following "colloquial" definition of middle class:

The middle class, in colloquial usage, consists of those people who have a degree of economic independence, but not a great deal of social influence or power.

On a lot of investing-oriented boards I frequent, the above definition is implicitly used. The class that is above the middle class is called the PTB, the PPT, management, trilateral commission, etc. In another words, a lot of people have the sense that there is something above the middle class, but they have a lot of difficulty describing who exactly this upper class is.

Years and years ago, I read a book that had a wonderful phrase: "Your end of the boat is sinking." This thread could be loosely paraphrased as starting with a posting that said, "Our boat is sinking." I'm amazed at how many people replied (once again paraphrasing), "It's the other guy's end of the boat that's sinking."
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Old 04-05-2008, 11:17 AM   #40
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The people in the sinking boat appear to be characterized by a negative savings rate. How many people on this board are in that particular boat?
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