foreclosureAnother great article from Salon’s Katherine Mieszkowski reviews The Two-Income Trap: Why Middle-Class Mothers and Fathers are Going Broke, a new book by Harvard Law Professor Elizabeth Warren and her daughter.


  • The greatest predictor of bankruptcy in America today is having children.
  • In the last generation, the typical family has become a two-income family, with 75% more income, but costs that have far more than doubled, making job loss by either parent, or family breakup, or medical setback (for anyone in the family, including, increasingly, dependent seniors), economically disastrous.
  • The costs that have risen most are mortgage, health insurance, car, preschool, after-school care and college. Spending on basics like food, clothing and furniture have actually dropped 20% for the average family with children in the past generation. ‘Excessive consumerism’ is a total myth.
  • Home mortage foreclosures are up over 300% in a generation.
  • The average mortgage rate in the US is 16%, ten points above prime, reflecting the huge increase in second and third mortgages and the number that attract rates in the 30% due to missed payments as a result of financial difficulties.
  • One in 12 Americans with mortgages loses their home to foreclosure.
  • The huge differential in house prices in areas with highly-rated schools (where residents’ children get priority placement) is a major factor in couples over-extending themselves and ending up bankrupt.
  • The shame and stigma over personal bankruptcy is so great that those affected are unwilling to seek political action against usurous lenders and other contributors to the problem, or even acknowledge or talk about it publicly.

This is another consequence of the ‘privatize and deregulate everything’ mentality that is destroying the American middle class, and millions of families in the process. Public education, transportation, and health infrasructure has crumbled in many areas to the point where it is not only unreliable and poor quality, but even dangerous. As a result, families with incomes that would have once allowed them to live comfortably are now pushed to the limit trying to afford vastly more expensive private alternatives. And the outrageously high interest rates they have to pay to mainstream financial institutions are illegal in most first-world nations, where sensible regulation of such excess still prevails.

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  1. mrG says:

    More to the point, and speaking as one who’s actually blogging the progress in our bankruptcy, my observation is simply that there are no jobs, increasingly across all sectors, but of epidemic proportions among the knowledge workers and IT professionals. Of all the IT people I know, including those I only know through their blogs, the vast majority are either unemployed or under-employed, and a quick glance at workopolis or shows few prospects with realistic expectations. IT spending on new projects, according to ITAC, is down a whopping 66%, and due to increasing use of inexperienced designers, the majority of those projects left on the burners are failing to produce any viable product, this in turn leading to a general disengagement of management from seeking IT solutions (blaming their tools instead of blaming their ill-conceived plans).A further factor, those projects which traditionally would have gone to local resident talent are increasingly being handed out to the major consulting companies, notably IBM and Microsoft, a move that only serves to escalate the costs and dampen the utility.It’s a difficult and deep problem, and I’m not even certain if a regime change in the US could turn things around. There is, apparently, no shortage of work to be done in all directions around us, and no shortage of talent to do them if the lineups for any decent job opportunities are any indication, but there is a distinct reluctance on behalf of the small percent who have the resources (whom you have documented here previously in your graph of wealth distribution) to share that wealth to grease the wheels of any such projects.

  2. Edward says:

    Boys: Welcome to the REAL world, in my beautiful and CRAZY country (Argentina) the situation you describe in the blog is normal.I am a CPA with two masters, my wife, too.We move the childrens from one Private School to a Public one.Thanks God, we didn´t loose our house, because we bought it before the crash.Good luck, and congratulations for the blog, Is SO GREAT.Edward

  3. john says:

    Am I reading that right, an average mortgage rate of 16%? It’s been so easy to refi at significantly, sickenly, lower rates for so many years now how could that be? Ignorance? I can’t believe that most of that is people with poor credit paying higher rates, it must be people who locked in a 30 year mortage 20 years ago and didn’t know they could refinance.

  4. Dave Pollard says:

    John: I can’t say for sure, but back when rates were high for first mortgages you couldn’t lock in this long. I guess we’ll have to buy the book to get the data.

  5. Yule Heibel says:

    Re. mortgage rates: could be 16% because of 2nd & 3rd mortgages taken on to finance “improvements”? I haven’t read the article, but heard the authors interviewed on NPR. One thing really stood out for me: that people think they can save by skimping on the “extras,” the meals out, etc., but that it’s actually the big ticket items (mortgage, health insurance in the US, that sort of thing) that will drag a family under when unemployment or illness hits.

  6. I am also shocked by those mortgage figures. I just bought a house with a mortgage rate under six percent. The recent refinancing craze has been one of the things propping up the economy. I think I’d better read the book.Part of what’s happening here in Baja Canada is one of those changes Alvin Toffler predicted in The Third Wave. There was a time when you could walk out of high school and into a job in heavy industry that paid well enough to support a family on one income. In the current argot, those are called family wage jobs.With the industrial base eroding and resource based industries on the wane, those jobs are a thing of the past. Boomers who have held those high paying jobs for years are now being laid off and can’t find work in an economy that demands far more education.It seems that the Third Wave, the post-industrial world, has yet to emerge in any definable form. Toffler was right in that these transitions are long and painful. As one whose job is based on information, I hope that I can hang onto the wave long enough to surf into retirement.

  7. Rob Paterson says:

    In 1965 a policeman on one salary could mcomforatbly raise a family in a middle class way. No as Dave points out two adults earning a lot more relatively can hardly get by. Children, a job los, an illness – any hiccup can spell disaster. What is going on?I am with you Dave and MrG. I sense that we are structurally in a death spiral. 1. The Mcjobbing of North America – In the 1970’s and 1980’s blue collar jobs in manufaturing were exported by corporations. Now with the advent of white collar outsourcing, Tech jobs are going to places like India. Most jobs are in the process of being commoditized. Even manufacturing jobs in Mexico are going to China. Leads to the hollowing out of the job market in NA. While this is going on as a trend, as Dave points out the trend for our most important costs is going the other way creating vulnerbility and the highest personal debtloads ever. Here I am with you Dave and MrG – the corporate world is anti life2. We have bumped up our core expenses both by choice and by default. The core cost is our home. The average home in the 1960 was 800 sq feet. Now it is 2,000. Relatively housing, and hence mortgages, is at the heart of our expenses. Attached to housing costs are insurance and other structural costs such as heating and cooling and transportatiomn. Most live in sububs where both need their own car. In the 1960, many lived in urban areas and could take transit. Huge costs embedded here. At least $9000 a year per car when you add back depreciation. Our choice of housing both in size and location is a core driver of the cost spiral. We are largely at choice in this area. Here I think our buy in to the idea that we will find happiness in a big house is partly to blame3. How we see our children. The public school system that we could rely on is now often a problem. Parents feel that they have to spend a lot not just on a private alternative but also on a legion of preschool and post school stuff. Daycare is a gigantic cost.I suspect that our guilt about having to be at work all the time also drives our kids to win the consumer war with us as well and drives a host of other costs such as rooms of their own – hence larger houses, toys games etc. So if you add kids to the mix, as Dave says you are really at risk. We say that we need the two salaries. My casual research suggests that after all the costs of daycare, two cars etc that we don’t. Most families do best to break even after all the extra costs are added up. Here we have made the choice to find satisfactiion at work rather than as parents. I ma not saying that we return to Leave it to beaver. I am suggesting that we are not honest with ourselves about what is going on and what other choices we may have.My response to this has been to go the other way.1. To reduce my structural costs. I used to be one of those bankers and earned banker money. But after my expenses, I had nothing but debt. I had a lovely looking house, nice cars and my kids were in private school – bottom line I was broke. By cashing out and moving to a low cost place like PEI my monthly costs dropped at first to about $1,000 a month! Now I have built them up again after being here for a long time but they are still a fraction of what I used to pay. Robin and I live very comfortably on a household income of not more than $60,000 a year. 2. This means that my little consulting business from home – almost no structural costs – leaves me also largely at choice for assignments. So I have a lot of control at work too and I am embedded in my community.3. When my children were born, I started to save money every month. I have been astonished at the power of forced savings. Consequently they were able to go to university and leave with some money still in their pocket. With forced savings it has to come out of the paycheck up front. I only noticed it in that we did not have as much cash as my friends who did not save and whose kids now have large debts.Dave I think that we have more choice thanwe think and that until we take charge of our own lives, we will be pawns of the corporate world

  8. Rob Paterson says:

    Sorry about all the typos

  9. Dave Pollard says:

    Rob: I think the important difference between Canada and the US is that the public infrastructure (‘safety net’) in Canada allows for Wealthy Barber style ‘forced saving’ if you have the self-discipline (which you obviously do). Not so in the US — you can’t force yourself to save when your discretionary income is negative.

  10. Dave says:

    Patterson’s comments are dead on. I’d also add to folks concerned about quality of education to try homeschooling. You find very quickly that things like peer pressure, generation gap, anti-social behavior are all side-effects of the institution of schooling. This is an especially important option for children that are struggling in school. It’ll bring your family closer together, and your kids will likely get an education, not just schooling. Oh, and instead of being separated from thier community, they’ll be “embedded.” One interesting note, kids that have been homeschooled for a significant portion of the K-12 years are much more active in their communities. 75% of them vote, which is 3X or more the rate of their jaded, disillusioned counterparts coming out of the public school system.

  11. I see this as a good thing. American’s are too complacent and non-participatory in our own government. Many complain over coffee, tea, or beer and sports, but never do anything or even vote.The only way to change this as I see it is to pull the rug out from under a majority of middle class homeowners and make them homeless.I can say this as a disabled person who has been homeless.American’s need to get PISSED OFF and finally DO something !That’s why we have Bush, because only 10% of the American population elected him out of 20% who voted.Then we need to hold politicians accountable by voting them out of office, the California recall is what we need nationwide. Scare the sh*t out of the politicians and put them out of a job, then get real people in office for Short periods of time so they do not get corrupted.We get the government that we do not participate in the electing or accounatbility of. Coffee clotch whining is too easy. See what your tax $$$’s get you when you go to a homeless shelter, apply for PA and food stamps. Believe me I found out.

  12. Indigo Ocean says:

    I think the fundamental problem that leads to these woes is the replacement of an organic/relational metaphor for human life with a mechanistic one. Humans are simply not valued in “modern” thought. All that matters is getting the job done as efficiently as possible with maximum profit for the resource owners. Whatever happens to the rest is a part of the chess game, the pawns drop first.Men and women both have been seduced by this unnatural way of looking at how they fit into life. Women, for example, fought many years for the right to work so that they could support their families if their husbands left or support themselves if they were not chosen to be a wife. This is of course reasonable. But somehow that transitioned into a situation where women who had husbands to support their families were working anyway so that they could have that second car, have the latest appliances, generally outpace the next door neighbors. Or they worked because they had been convinced by their society that somehow the work of “getting things done” in the public/business sphere was more important than nurturing people in the relational sphere (family, community, etc.). Wanting to be “valuable” in their society, these women left traditional roles, snubbing their noses at the very idea that they should waste their lives as “just a housewife.” Now things have deteriorated to where the bubble of this illusion has burst and women realize they would be happier making their lives around giving and receiving love in the form of care and nurturing and actually hate the emotional ravages of life in the competitive, agressive corporate sector, but they can’t afford to do it because of the price of land in North America. Their families need them working just to break even with what two generations ago the husband’s salary alone could afford them.How has that happened? Because employers are optimizing just as diligently as workers. As we work to get ahead by doing more hours (per family) they try to get ahead by paying less per hour. They achieve this most readily by shipping the jobs to places where they can offer the lowest wage. With a global labor market they always win because their is an abundance of labor and a shortage of employers. So the system is naturally built to keep decaying until the entire world is basically living at what are now called “3rd World” standards. Homogenization forms around the low end of the human experience.Inhuman? Of course. But in the mechanistic worldview, its just business. “How naive to think we are supposed to be human,” says the smirking businessman in his Armani suit, “our responsibility is to our shareholders.” And the N. American workers will never be able to underprice the Asian contractors because the price of land is so vastly different. Do you know how many homeless working people there are in the US? I forget exact numbers, but the last time I checked the figure was shocking. People are working hard but still can’t afford a place to live. Speaking for myself, 65% of my income goes to pay for housing. And thank God I don’t have kids to try to house, clothe, feed, etc.Many of you have presented great points on the tweaks that can be done to mitigate the harm inherent in this system. But what do we do to shift the underlying situation and once more put humanity at the top of the priority list for how human systems work? How do we develop economies that value humans as a part of their organizing philosophy? Where does the valuation of nurturing and care, of human relationship, factor in within our society? What would that look like at a global scale and what would that look like in your life?

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