Elizabeth Ann Warren, in her talk, demonstrates how we’re moving from a three-class society to a two-class one of two extremes
Elizabeth Ann Warren is a senior United States Senator from Massachusetts and a member of the Democratic Party. She was previously a Harvard Law School professor specialising in bankruptcy law. When she was still a professor, she gave a talk at Harvard University on the collapse of the middle class (2007). Of course, the data she worked on was American but the wisdom in her talk is applicable to any country. As we go along we will recognise many of the features she identifies as typifying the middle class and the threat it faces.
It has always been derogatory to belong to the “middle class”, and Warren says in the course of her talk that this contempt has kept us from understanding the problems facing this group of people. It is important to understand them for they make the fabric of any country, being, as they are, the bulk of the population. She fears that we will be moving from a three-class society — of some rich, some poor, and the rest making a swelling middle class — to a two-class society with, “a larger upper class who don’t get sick, don’t lose a job, don’t divorce, don’t have death, don’t hit any of life’s bombs… the rest is one long trail of underclass that stays on a constant debt treadmill.”
The single most significant economic shift in the United States (as elsewhere) has been the increase of women in the workforce. “The median family in America went from being a single-income household in the 1970s to a double-income household in 30 years… I would have thought this would mean people would stop living in the suburbs and that they would be very rich with no debts and lots of holidays,”says Warren. But that was not how it was. She shows data to show man’s income has not risen in a period of 30 years, from the 70s to 2005. That is how, says Warren, the idea of revolving debt or credits cards came into being. Warren compares the statistics of two time periods and shows that families have not just started spending mom’s income they have also given up on savings and incurred credit card debt. A family is taken as parents and two kids.
What have families started spending it on?
Warren found, “Families are spending 32 per cent less today on clothes than they were 30 years ago. So we decided to look at food. Most probable, we thought, what with mom not being home…and in 1973 nobody paid for water. But the answer was that people were spending 18 per cent less on food, 52 per cent less on appliances. So the idea that we are an over-consuming society did not hold.”
Families are spending more on mortgage. Even though interest rates may be lower, the mortgage sums are higher; 76 per cent higher, for a similar sized house. Secondly, new constructions are built more as the second home to people, in the sense that they are not entry-level houses but more sophisticated houses.
Families spend 74 per cent more on health insurance. They have more cars… Childcare has seen a 100 per cent increase. And the tax rate for the economic unit of a family has gone up by 25 per cent.
“Earlier, expenditure was flexible. Today small expenditures have decreased but what has increased is the long-term and more burdensome commitments. Double income has now become mandatory to survive. The family today will collapse if one partner cannot work due to some reason. Even though we spend more on health insurance, health care has suffered… just look at the number of days of post-surgery hospitalisation today. Add to that that the insurances for which we pay so much still do not cover many things that are important, like hospitalisation, specialists or even prescription drugs! The expenditure on education has increased, what with the shift from merit-based funded higher education to paid seats in colleges,” says Warren, adding that more families are filing for bankruptcy than divorce. If you do not know about it, it is because it is still shameful to admit to.
Warren sees all this as squeezing out the middle of the society, deforming it into an upper class with a long tail of those who live without any economic security.