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The No-Frills Middle Class - Not everyone is overdoing it . . .
September 4, 2003
By JEFF MADRICK New York Times

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 necessities.

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 budget.

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

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.