Harvard Law professor Elizabeth Warren was a pleasure to watch in the film Maxed Out, a documentary about predatory practices in the credit industry. Not at all your standard media-savvy academic, her onscreen persona is quirky and a bit awkward but ultimately engaging, and her explanations are crystal clear.
I’ve just watched a video of Prof. Warren giving the 2007 Jefferson Memorial Lecture at UC Berkeley, entitled “The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net.” The lecture is far from an alarmist polemic, but rather a careful examination of economic statistics showing how life for a family of four was radically more difficult in 2003 than it was one generation earlier in 1970. I didn’t expect to watch more than a few minutes of this video, but ended up watching the entire hour, even taking notes.
Prof. Warren’s most striking statistics concern the spending shifts in different categories between the 1970 one-income family and the 2003 two-income family. The latter family had 50% more income than the former family. Here is how the spending changed in nine categories. First, the decreases:
- clothing: 32% less in 2003
- food: 18% less
- appliances: 52% less
- car-related expenses (per car): 24% less
And then the increases:
- mortgage: 76% more in 2003
- employer-sponsored health insurance: 74% more
- car-related expenses (per family): 55% more
- taxes: 25% more
- child care: infinitely more (i.e. new expense)
Warren points out that the first group of categories is somewhat flexible, i.e. open to cost-cutting when times are tight, while the second group represents more or less fixed expenses. Given this, she says that the 1970 family spent 50% of their income on fixed expenses, while the 2003 family spent 75% on them, and the 1970 family had more absolute dollars left over after fixed expenses than the 2003 family.