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interesting lecture on income/consumption over the last 30 years
Old 04-04-2008, 10:34 AM   #1
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interesting lecture on income/consumption over the last 30 years



It's about an hour long but went pretty quickly.. May dispel some of the myths about American household consumption as have been arising on the board about CPI and so forth.

Very measured and accessible presentation, I thought.. if you can screen out/get beyond her use of the words "safety net" (which we think of as a disputed gov. role; here she means more of a "safety VALVE" in practice).

P.S. Skip the first 5 minutes to get beyond the intro.
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Old 04-04-2008, 02:03 PM   #2
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The 57 minute length is going to chase a lot of people away. This article has some of the same stuff in a text format The Middle Class on the Precipice**(January-February*2006)

I'm not sure what "myths" you're referring to. This is my summary of the lecture:

Median income for males has been about flat since 1970.

Two parent families have increasing incomes because many more mothers are in the paid workforce.

Much of the gain in family income is chewed up by direct costs of the second worker. This would include paid child care, higher income taxes, and a second car.

(I would add that there are other costs which she didn't mention - more meals out, more "convenience" foods at home, more expensive clothes.)

If you look at how families spend their money, spending has shifted toward mortgage payments and health care. And, they are saving less.

Spending on food and clothes has actually gone down, if you adjust by the composite CPI. (I think Warren sees families being thrifty in these areas. I tend to think that people are actually buying a little "more", it's just that these are areas where prices haven't gone up as fast as the composite.)

Warren says that spending has shifted toward items that are fixed in the short run (mortage payments, health premiums), so families have less adjustable spending that can flex down if they have some bad luck.

People feel they "have to" spend a lot more on education. In 1970, a public high school diploma was considered enough to make it into the middle class. By 2000 parents believe a college degree is a necessity, and college isn't as cheap as high school.

Based on all of this, most families on "on the edge". Any minor bump in the road can set off a bankruptcy and a drop to "below middle class" status.

------------

Okay, I've got that. Now the myths are?
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Old 04-04-2008, 02:11 PM   #3
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I've seen that woman a lot on credit card documentaries, etc. She has a good and very dramatic way of talking.
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Old 04-04-2008, 02:37 PM   #4
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Thanks Ladelfina for posting this lecture by Elizabeth Warren, commercial law scholar. Very very interesting. It busts a lot of stereotypes about why people are having trouble paying bills.

Summary:

She says mothers entering the work force has been the single most important economic shift in America over the past 30 years. The median family went from being a one income family to a two income family. The assumption was that families should have become very wealthy. Instead, from 1970-2006, family income went up but incomes for males actually went down, taking into account inflation. Family incomes rose only because women went into the workforce.

In 1970, the average family was saving 11% of income, but by 2006 families were saving nothing. NADA. What went up is revolving debt, which is credit card . In 1970, the median family was carrying 1.4% of family income in revolving debt, but by 2005 was carrying about 15%.

She asks, "What did they spend the money on?" She researched this and discovered that the US Government commerce (and labor) department as kept data on what American's spent their money on for the last century in quite detail. The results were very interesting!

For a family of four in 2005 they spent --32% LESS on clothing than in 1972. For food, they spent -18% LESS than in 1972!!
Appliances, -52% LESS than in 1972.

Per car cost has gone down -24% since 1972. People keep their cars longer!

Ordinary consumption costs have gone down.

But mortgage costs have gone UP 76% since 1972 in inflation adjusted dollars. Big difference! The median size house grew from 5.8 rooms to 6.1 rooms, picking up either a second bathroom or third bedroom but not both.
The average family owns a house 25 years old.

Next, health insurance. The average family with employer sponsored health insurance pays 74% more in inflation adjusted dollars than 30 years ago.

Also, families with two wage earners have to have two cars.

And, child care is a necessity. A new expense for the two wage earners.

Finally, taxes. the tax rate has gone up 25%.

Conclusion, the costs that have risen most are necessities in contrast to the expenses that have gone down, which are discretionary. In 1970, the family is spending 50% on basic expenses whereas in 2005 the family is spending 75% on these basic expenses.

If one wage earner loses his/her job today, the family is in big trouble! The risk of losing 20% of their income has greatly increased since 1972.

Health care risks have increased as well. Hospitals send home people after surgery much quicker. After cesareans, you go home after two days. The assumption is that a person goes home and a family member takes care of them. So the spouse stays home from work to take care of the sick family member.

We have "faux" health insurance now, such as the "Utah policy" which doesn't cover hospitalization, prescriptions or other necessary expenses! Many people have insurance but it doesn't cover pre-existing conditions.

One income families have increased in number but face the same expenses as two income families. They can't make it.

No wonder the middle class is in trouble!
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Old 04-04-2008, 02:51 PM   #5
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and yet here we sit with our SUVs and cell phones and high speed internet
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Old 04-04-2008, 03:01 PM   #6
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and yet here we sit with our SUVs and cell phones and high speed internet
You have totally missed the point of the facts presented in the lecture.
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Old 04-04-2008, 03:06 PM   #7
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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.
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Old 04-04-2008, 03:08 PM   #8
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What is the point? Are we supposed to be worried that our middle class is shrinking? Should that be offset by the fact that developing nations have a growing middle class?

Is this a problem for which we should find a solution? If so, what is the problem exactly, and what are some solutions?

Is this thread about "oh, the humanity!" or is it about "yikes, the consumers we depend on to inflate our invested assets are in trouble!"

What is the point?
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Old 04-04-2008, 03:17 PM   #9
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Originally Posted by ladelfina View Post


It's about an hour long but went pretty quickly.. May dispel some of the myths about American household consumption as have been arising on the board about CPI and so forth.

Very measured and accessible presentation, I thought.. if you can screen out/get beyond her use of the words "safety net" (which we think of as a disputed gov. role; here she means more of a "safety VALVE" in practice).

P.S. Skip the first 5 minutes to get beyond the intro.
I watched the entire youtube presentation. Very interesting and, since I am old enough to have lived all of the period, validates a lot of what I thought. Thank you for posting it.
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Old 04-04-2008, 03:22 PM   #10
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I agree with the lecturer, but I too wonder what the consequences of losing the middle class are.
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Old 04-04-2008, 03:37 PM   #11
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I agree with the lecturer, but I too wonder what the consequences of losing the middle class are.
Historically, the elimination of the middle class has eventually led to societal upheaval. When almost no one has anything to lose from dramatic change, dramatic change happens. Should be fun!
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Old 04-04-2008, 03:39 PM   #12
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I agree with the lecturer, but I too wonder what the consequences of losing the middle class are.
Feudalism?
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Old 04-04-2008, 03:41 PM   #13
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What are the historical precedents? I've always assumed this will play out as the Europification/Japanification of America.

We'll demand more social services. Taxes will go up. Consumption will slow. Economic growth will slow. Investment returns will be reduced. Saving will increase.
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Old 04-04-2008, 03:44 PM   #14
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I agree with the lecturer, but I too wonder what the consequences of losing the middle class are.
I suspect that just about every poster on this board would qualify as "middle class" under most definitions of middle class. Suppose we lost every poster on this board because of the loss of the middle class. Other than the fact that the board would be kind of boring, would would be the consequences?

"And therefore never send to know for whom the bell tolls; It tolls for thee." -- John Donne
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Old 04-04-2008, 03:46 PM   #15
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Feudalism?
Nah we will have a revolt before that happens. Some massive wealth redistribution.
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Old 04-04-2008, 04:03 PM   #16
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What is the point? Are we supposed to be worried that our middle class is shrinking? Should that be offset by the fact that developing nations have a growing middle class?

Is this a problem for which we should find a solution? If so, what is the problem exactly, and what are some solutions?

Is this thread about "oh, the humanity!" or is it about "yikes, the consumers we depend on to inflate our invested assets are in trouble!"

What is the point?
The point is whatever conclusion you wish to draw from it.
For me, I appreciate the lecture for the information, to gain understanding of what's happening in our society. If people understand, then there will be more support for legislation that can alleviate the burdens, such as universal health insurance.

If there's a solution then it is likely to be a more progressive tax structure, elimination of the Bush tax cuts, increase in the capital gains tax (going back to the tax rates of the Clinton era when we were more prosperous and able to pay down the debt). Also, in order to reduce government expenditures, I would suggest a halt to the Iraq war, and a focus (through tax deductions) on developing sustainable energy technology to reduce dependence on foreign oil sources.

One of the repeating themes of Warren's lecture is that the risk burden, which was shared widely by society in 1972 through pensions and health insurance funded by companies, higher education funded through tax dollars, etc. is now borne by the individual and families. This individual "responsibility" now causes families to stretch themselves in order to maintain middle class status and, more importantly, to launch their children into the middle class through a college education. There's nothing left to save for retirement.

It's clear from this lecture presentation that most families are one accident, layoff, or illness away from bankruptcy. This situation is not sustainable especially as we are heading into difficult economic times with social security and medicare expenses.

There are some hard decisions to be made about what kind of society we want to live in. Solutions will be difficult and will come about through patient, incremental changes. The same ole same ole presented by McCain, et al, will not help, will, IMHO, hurt our society.
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Old 04-04-2008, 04:15 PM   #17
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The point is whatever conclusion you wish to draw from it.
For me, I appreciate the lecture for the information, to gain understanding of what's happening in our society. If people understand, then there will be more support for legislation that can alleviate the burdens, such as universal health insurance.

If there's a solution then it is likely to be a more progressive tax structure, elimination of the Bush tax cuts, increase in the capital gains tax (going back to the tax rates of the Clinton era when we were more prosperous and able to pay down the debt). Also, in order to reduce government expenditures, I would suggest a halt to the Iraq war, and a focus (through tax deductions) on developing sustainable energy technology to reduce dependence on foreign oil sources.

One of the repeating themes of Warren's lecture is that the risk burden, which was shared widely by society in 1972 through pensions and health insurance funded by companies, higher education funded through tax dollars, etc. is now borne by the individual and families. This individual "responsibility" now causes families to stretch themselves in order to maintain middle class status and, more importantly, to launch their children into the middle class through a college education. There's nothing left to save for retirement.

It's clear from this lecture presentation that most families are one accident, layoff, or illness away from bankruptcy. This situation is not sustainable especially as we are heading into difficult economic times with social security and medicare expenses.

There are some hard decisions to be made about what kind of society we want to live in. Solutions will be difficult and will come about through patient, incremental changes. The same ole same ole presented by McCain, et al, will not help, will, IMHO, hurt our society.
Heck ya a vote for Obama is a vote for wealth re-distribution! Change is good!
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Old 04-04-2008, 04:26 PM   #18
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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?!
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Old 04-04-2008, 04:30 PM   #19
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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?!
Ya then we get invaded by Mexico and Canada. Well maybe Canada..since Mexico has already started.
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Old 04-04-2008, 05:23 PM   #20
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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?!
I would like a petite maid in a scimpy outfit, but you lost me when you got to a 48% tax rate.
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