Source Jim Devine
Date 03/09/04/12:55

September 4, 2003/New York TIMES
The No-Frills Middle Class

THE booming economy of the 1990's spawned many a spurious piece of
conventional wisdom. One is that Americans' materialism has run amok.

Americans from all walks of life, the story goes, are spending with
abandon on fancy and unnecessary products. Many people on the political
right welcome this as evidence of how high the standard of living really
is in the United States, despite slow-growing wages for three decades.
Some on the left claim the indulgent materialism is using up the
economy's resources while serious social problems are left unsolved.

Similarly, many economists argue that "affluenza" has pushed too many
Americans deeply into debt and produced a savings rate too low to
sustain prosperity without the piling up of mountains of foreign debt.

There is little doubt that some Americans are spending ostentatiously.
But this Labor Day week it is appropriate to debunk the
oversimplification. As Elizabeth Warren and Amelia Warren Tyagi
convincingly claim, most Americans do not fit the bill. What is driving
Americans into debt, they argue, is not superficial luxury spending but

If they perhaps push the point too far in their new book, "The
Two-Income Trap" (Basic Books), they provide a clear-eyed correction to
the myth of far-flung affluence.

The fact is that it is not only the poor and working poor who are not
faring well in America. Many of those in the middle, especially
two-income families, are having trouble making ends meet, despite the
boom of the 1990's.

Part of the distortion about where American working families stand today
is that we tend to think of a standard of living as measured in the
physical goods we own. The conservative analysts W. Michael Cox and
Richard Alm, in their 1999 book "Myths of Rich and Poor," asserted that
Americans were buying a lot more goods like Gap clothes, Nike sneakers
and VCR's, and the standard of living was improving faster than the data
suggested. But the book conspicuously ignored the costs of education and
health care, and put a misleading spin on housing.

Yes, the costs of food and clothing have risen more slowly than median
family incomes, and the costs of electronic products have fallen
rapidly. But the costs of what it really takes to be middle class today
- education, health care, housing, drugs - rose much faster than median
family incomes. According to federal data, for example, my own
calculations show that nominal family incomes rose by about 5.5 percent
a year from 1973 to 2000, but the cost of health care rose nearly 8
percent a year, and the cost of higher education 6.5 percent.

Ms. Warren and Ms. Tyagi make the point vividly, however. Ms. Warren is
a professor at Harvard Law School, and Ms. Tyagi is a management
consultant. They are mother and daughter.

The authors find that despite the popular notions about overconsumption,
a typical family spends less on clothing today, discounted for
inflation, than in the early 1970's. Similarly, it spends less on large
appliances and on food, including going out to restaurants. As for
vacation homes, the data suggest that 3.2 percent of families had them
in 1973, and that 4 percent do now. Is this affluenza?

Rather, what families spend a lot more on, the authors calculate, is a
house in a safe neighborhood with a good school - about 70 percent more
a year, discounted for inflation, for the typical family of four. The
scarcity of good schooling has created a bidding war that drives up
house prices in first-rate school districts.

And these families are not buying huge new homes. The average home size
has been skewed upward by the wealthy. The typical family's house is, in
fact, only a half room or so larger than it was 30 years ago.

The other factors driving spending are largely the costs of the
two-income family. The authors find that typical payments for day care
and preschool for two children can add enormously to the household

Two workers also make a second car a necessity, and often a good second

Also, the cost of health insurance is often up, even when spouses work,
because corporate benefit plans are demanding higher employee
contributions. For the typical family of four, it is up by 60 percent.

And two incomes often mean a substantial increase in taxes because the
family moves into a higher tax bracket.

The upshot is that two-income families often have even less income left
over today than did an equivalent single-income family 30 years ago,
even when they make almost twice as much. And they go deeper in debt.
The authors find that it is not the free-spending young or the
incapacitated elderly who are declaring bankruptcy so much as families
with children.

The authors' suggestions for how to solve the problems are not
conventionally liberal. They call for vouchers for the total cost of
public education; tuition freezes at colleges rather than more federal
financing; and tax breaks for all savings.

Not all of these are practical.

And Ms. Warren and Ms. Tyagi draw too fine a point here and there. There
is surely some mere status-seeking in sending a child to the right day
care institution and living in the right neighborhood.

They also justify too readily the purchase of an expensive car as the
family's second vehicle.

But their main thesis is undeniable. Typical families often cannot
afford the high-quality education, health care and neighborhoods
required to be middle class today.

More clearly than anyone else, I think, Ms. Warren and Ms. Tyagi have
shown how little attention the nation and our government have paid to
the way Americans really live.

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