Tuesday, July 27, 2010

The Full Warren

Mike Konczal at Rortybomb has a nice send up of McMegan's attempt to claim that Elizabeth Warren has been juking the stats. Megan McArdle's point, which I've heard before, is that Warren's seminal research on the impact of medical bills on is too broad, including things like gambling addiction, alcohol abuse, etc., where the actual cost of medicare isn't the direct driver of bankruptcy. There are two counter arguments to this. One is that Warren is pretty up front that she's trying to get at this broadest measure possible, and that the issue here isn't just medical cost but illness associated income losses, etc. If America's workers' compensation system looked more like Germany's—heck, if the whole country simply adopted Washington state's level of workers' comp—there would be far fewer bankruptcies . The other is that examination of court records tends to undercount debt due to medical costs. If you owe the hospital money, and you pay it on your credit card or mortgage your house, by the time you file for bankruptcy it doesn't look like you have any medical debt. But in this case it's pretty clear that without the medical bills you wouldn't be in court.

This is all well and good, and people need to understand that the Affordable Care Act will help drive down the number of bankruptcies in this country. But just as interesting as the discussion of Warren's data is a long article Warren wrote for the Boston review on the root causes of the middle class squeeze. All the talk about designer brands and fancy household appliances tends to obscure the fact that prices of these goods have been declining thanks to globalization. Middle-class Americans aren't engaging in more frivolous spending than they were 20 years ago, they're engaging in different frivolous spending. Warren identifies three big ticket
  • The normalization of one car per driving-age member of the household.
  • The rise in cost of "the basics": medical care, child care, and education (pre-kindergarten and college)
  • The rise in housing prices, often largely driven by a frantic search for quality school systems.
All of these, particularly the rise in housing prices, have led to an increase in demand for credit, which has also been increasing in cost. So when you think about the "middle class squeeze", think about these three items.

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