A Small Critique on "The Vanishing Middle Class"

I am a little over 1/3 of the way through Ending Poverty In America. One of the chapters was on "The Vanishing Middle Class" by Elizabeth Warren. It was an interesting article. For instance, she cites that

When asked in an open-ended question to identify their class membership, more than 91.6% of the adult population of the United States volunteer an identification with "working" or "middle" class.

That's a pretty strong identification with being in the middle class. She then rather succinctly and clearly states the facts of the matter,

In a single generation the family had picked up a second earner, but it had spent every dollar of that second paycheck. Worse yet, it had also spent the money it once saved, and it had borrowed more besides. By the most obvious financial measures the middle-class American family has sunk financially.

She then critiques and criticizes the standard explanation of overconsumption as the reason for this. Again she makes some helpful and insightful points, but I would argue with her on a couple items.

For instance, in explaining where the money actually goes, she cites the increase in fixed costs, the first being for housing. Now, I would agree with anyone who says that the cost of housing has increased dramatically. But she has an odd way of trying to explain that we are living in virtually the same homes that we did a generation ago, citing that the median home today has 6.1 rooms versus 5.8 rooms in the earlier period. The number of rooms is not a very helpful measure though, and in my opinion it is a somewhat misleading statistic in two ways. First, I believe the size of families has shrunk over the last generation so we should need fewer rooms not more. And secondly, the size of those rooms has increased dramatically.

The square footage of new homes increased by 39 percent between 1971 and 1996 to include family rooms, home entertainment rooms, home offices, bedrooms and often a bathroom for each family member. (Source: D'tente in the Housework Wars, Toronto Star, 1999) as cited in Nickel and Dimed: On (Not) Getting By In America by Barbara Ehrenrich.

This is important to recognize because it reveals one possible solution is to to put greater pressure on local zoning and housing authorities to require more construction of affordable as opposed to luxury housing. Anecdotally, nearly all of the new housing construction I see in this area, especially near work, is for luxury homes. That doesn't help me any.

The second fixed costs she cites is healthcare, and I don't argue with her on that, but the third fixed cost she cites is transportation, namely automobiles. Again she misses an important aspect of our overconsumption. The average new car lasts for a life of 10.2 years and mileage of 120,000, but the average trade-in occurs after just 4 years and 50,000 miles (source: Good Sense Budget Course). Repeating the purchase of a new car at these intervals over a lifetime can literally add up to hundreds of thousands of dollars.

I wish on her solutions segment she had talked more about financial literacy and education. She makes good points regarding the explosion in credit marketing, but there is so much more to it than that. In my opinion, no one should be able to graduate high school or college without a basic course on personal finances. Everyone needs to know how credit cards work, how to create a budget, what a mutual fund and 401k/IRA is, etc. We are not preparing young people for informed and responsible financial management throughout their life.

I am enjoying reading the book though and would continue to recommend it to everyone.