'economic Risk Has Shifted From The Government And Corporations To Workers And Their Families.'

1250 words - 5 pages

Why are so many Americans mired in debt, going bankrupt, and worried about the economy? To many observers, the answer is simple: middle-class families have embarked on a reckless spending spree, confident that they will be bailed out by the government when the day of reckoning arrives.Warren and Tyagi throw cold water on this condescending chorus. As they convincingly demonstrate, middle-class complaints have a solid basis: even as women's contributions to family income have risen, the basics of middle-class life have become much more expensive. Others have noted that women's entrance into the work force was necessary for midle-class families to advance in the 1980s and 1990s. But Warren and Tyagi take this observation a giant leap further. Families haven't advanced. They have been running to stay still.Warren and Tyagi have set a high hurdle for the "over-consumption" argument, and for this they deserve great credit. Yet because they focus so heavily on the consumption side of the picture, Warren and Tyagi say less about what is arguably the core economic experience of today's working families: increased insecurity.One reason for this oversight, ironically, is that Warren and Tyagi appear to buy into the central tenet of the over-consumption school--namely, its view of middle-class spending as consumption, a simple cash outflow that straitjackets family finances. "Today," they write, "the basic expenses consume 75 percent of the family's combined income. Their nut--the amount that they must pay in good times and in bad--is fixed at 75 percent of their income."Yet many of the big-ticket items that Warren and Tyagi discuss--housing, education, even child care--are best thought of not merely as consumption but also as investments. And because they are partly investments, they can scarcely be viewed as money down the drain. To the contrary, families make such investments in hopes of big payoffs. The rub is that the up-front costs are certain, and the future payoffs are not. Today's family budget is not just inflexible, in other words; it is also risky.Consider housing: Warren and Tyagi argue that the high cost of housing reflects not the burgeoning of huge, amenity-chocked homes, but the bidding war in which families engage in order to live in good neighborhoods with strong schools. This explanation is persuasive, but it leaves a logical hole. Purchasing a high-price home does indeed constrain a family's budget. But presumably that family will benefit if the bidding war continues (and that is ignoring the educational benefits). They can sell their house for more than they paid for it, or they can confidently take advantage of the growing variety of financial vehicles that allow homeowners to tap into home equity.Yet, as economists have warned, there is no guarantee that the housing market will remain hot. And if the air does leak out of the housing bubble, many families will be in serious financial trouble. What is at issue, in short, is not just...

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