Elizabeth Warren

25warren-cnd-articleInline Last week, I picked up The Two-Income Trap looking for a quick quote for something I'm writing, and I ended up spending the afternoon rereading the book. It's an excellent read. She writes that the middle class has become immersed in debt not because they are spending more on material goods. Thanks to cheapo clothes at Target and disposable furniture at IKEA, we're actually spending less on those products than we did in the past. We are spending more on homes that are located in towns with good school districts. We not over extending to buy the towering McMansions with cathedral sized entrance ways, but crappy, over-priced homes in these towns just to give our kids a good shot at the future.

It's such a well-written book, and it's clear that she has great sympathy for good people who go bankrupt. Love it.

The New York Times has a feature on her attempts to reign in the excesses of Wall Street.

41 thoughts on “Elizabeth Warren

  1. Interesting thought for the people in your township (or whatever) who don’t have children and don’t want to pay taxes for good schools. Those good schools may be the single biggest factor contributing to high property values. I wonder (though not enough to do the legwork myself) whether that’s true, and whether it would have any effect on the grumpies.

  2. Those good schools may be the single biggest factor contributing to high property values.
    Except, that it also goes the other way. Sure, there is a minimum standard you have to meet to have a good district (no asbestos in the cafeteria), but the high house prices in themselves can make a better school district. When you get a high enough housing cost, you’ve priced out many social problems and sort of purchased a peer group for your kids that, while it may have other problems, is unlikely to push them away from college. When I hear people talk about school districts, they talk about the other kids in the school and their parents at least as often as they mention whatever program the school may offer. There’s a word for this that I’m not remembering, but economists talk of a type of goods where demand increases as they get more expensive.

  3. “Those good schools may be the single biggest factor contributing to high property values.”
    Relatively speaking, yes, but you have to factor in the effect of the housing bubble. I bet if you looked up the home price trend you would find that home prices in Laura’s area probably doubled between about 2000 and 2006. When I was house hunting in Montgomery County, MD (another area with those fabled “good schools”), I was finding that starter homes in unimpressive neighborhoods had doubled from around $200k to $400k during those years.
    Ultimately, none of us should be betting the farm on “high property values.” If your house goes up in value, what are you going to do? You can live there, and the increasing value will be of interest only to your heirs, or you can sell it, and then you have to go live somewhere else, where you will also have to pay. Californians did exploit the sell-high, buy-cheap-elsewhere model for quite a while, but as events have shown, it’s not sustainable longterm.

  4. “When you get a high enough housing cost, you’ve priced out many social problems and sort of purchased a peer group for your kids that, while it may have other problems, is unlikely to push them away from college. When I hear people talk about school districts, they talk about the other kids in the school and their parents at least as often as they mention whatever program the school may offer. There’s a word for this that I’m not remembering, but economists talk of a type of goods where demand increases as they get more expensive.”
    Right. I believe Warren talks about improving schools as a solution to the two income trap, but your points suggest why it’s not that easy (not that there isn’t plenty of room for improvement).

  5. “Thanks to cheapo clothes at Target and disposable furniture at IKEA, we’re actually spending less on those products than we did in the past.”
    That’s definitely true on a per item basis, but I think the average family takes advantages of the low prices by buying more items.
    I think cars also deserve a mention. I’m not sure about the history of car sales (when leases were first created and took off, how the terms for sales changed), but from listening to Dave Ramsey callers, that also seems to be a problem. When you’ve got two $400 or $500 monthly car payments, any bump in the road is a big problem.

  6. “That’s definitely true on a per item basis, but I think the average family takes advantages of the low prices by buying more items.”
    I’m constantly amazed these days by the amount of stuff people have, especially children, and including mine. Did Warren say, for example, that people actually spend *less* on clothes. Using Amy’s reasoning (and my experience), I’d say we spend more, though perhaps less on each item. Yes, a winter coat costs less than it used to (I remember purchasing one was a fairly big deal), but these days, kids have more coats. My family is economically much better off than my family of origin, so my viewpoint is skewed. But, I think I see it in other families, too.

  7. “There’s a word for this that I’m not remembering, but economists talk of a type of goods where demand increases as they get more expensive.”
    Luxury and positional goods can both see demand increase as price rises.

  8. I love Warren. I’m not quite finished with her financial advice book, All Your Worth, but it’s really common sense and not terribly complicated. It’s biggest piece of advice–no consumer debt. It’s amazing how hard that is to follow, even for someone like me who really does know it’s a bad thing.
    Our housing market sounds similar to Amy’s. We bought our house in 2003. When we were looking, friends of ours in a not so great-looking neighborhood in a good school district encouraged us to look there because they’d paid just above 200k for their houses. When we looked, just 2 years after they’d bought their houses, prices were over 400k. They couldn’t believe it. We couldn’t believe it. We bought a house for just over 300k in the same school district just in a “lesser” elementary school district (ironic because we got redistricted into the “better” school right after we moved). A couple of years later, prices went up to over 400k here, too. Now, most houses are selling in the mid 300s.
    Another issue for people is the home equity loan, which Warren points out in Capitialism, Greenspan touted as a wise thing to “tap into” on a regular basis. Many of today’s foreclosures are not a result of first mortgage failures, but home equity loans that ballooned.

  9. The areas with the biggest housing bubble problems were California, Arizona and Florida, no? These areas are retirement destinations, I think–warm weather places. I’m not sure the schools aspect has a lot to do with the housing bubble. I suspect it has to do with retirees cashing out of cold areas with great schools and trying to buy into places with bad schools and warm weather.
    (Note: If I’ve misread–correct me, please.)

  10. Many of today’s foreclosures are not a result of first mortgage failures, but home equity loans that ballooned.
    We keep getting mail about those loans, thought not as often as we used to. Foreclosures in Pittsburgh are actually lower than what they were a few years ago, probably because house prices are still holding in the nicer areas. This doesn’t have much to do with the school district. It looks like Pittsburgh is finally hitting bottom on population decline which removes a major source of downward pressure on price.

  11. Wendy, my sense is that families buying in new subdivisions did indeed contribute to the housing bubble in places like Arizona, Florida, and California. I knew several people who picked up their families and moved from Chicago to Arizona or Las Vegas. They were excited by the prospect of a brand new house in a new neighborhood with a newly-built elementary school around the corner. (At least one of these people ended up in foreclosure.)
    Part of what’s going on here is, as Laura mentioned, people trying to buy themselves out of a myriad of social problems. There’s a sense that a new school district filled with new people who just moved to the subdivision will not have the kinds of endemic problems present in older districts. (I don’t agree, but I think that’s the perception.) In many of these new subdivision communities there *is* no poor part of town, not yet anyway. Residents are carefully sorted based on income … which is just how they want it.

  12. I had several of these same questions when I read the Two income Trap and I discovered that Ms. Warren is more than willing (through her assistant) to answer many of the questions I had regarding her information and analysis. She is even more gracious than I would have expected from watching her academic and television appearances.
    As I remember, even with the increase in the amount of stuff purchased, we still spend less (inflation adjusted) on clothing, automobiles and other consumer goods than we did just a generation ago.
    One thing, though, that I don’t think gets mentioned very often in this discussion is how we define Middle Class. I believe that as a society, Americans are very uncomfortable with the idea of a class system, and the term Middle Class is used too widely. I believe we use to have a prosperous Working Class and an educated, but not high income Middle Class that had the ability to move upwards in terms of socio-economic gains. I also believe that it is the Working Class that was most strongly decimated in the past two generations, and that the affects are now showing within the Middle Class.
    But, ultimately I think too many people want to perceive themselves as a higher class than they are which muddies some of the issues that are contained within this conversation. And the “Two Income Trap” seems to have had the effect of an opiate that obscured the lack of gains being made by many, which people bought into because they did not want to fact the fact that the rules had changed.

  13. This got me curious about house prices on my street. I noticed that one of my neighbors pays about half what we do in property taxes. Our house is about 2/3rds the price and size of theirs. Now, on top of everything else I’m rushing to do so I can take a trip over Easter, I have get up at 5:00 a.m. so I can let the air out of their tires.

  14. Usually the neighborhood teens get blamed for my stunts, but I wouldn’t feel right about trying to get the blame shifted to any one specific person.

  15. As a point of fact, it is the Democrats fault that the local property tax set-up is so unequal. Everybody with any role in screwing things up is a Democrat. To be fair, with the exception of a few Supreme Court justices, so is everybody with any role in trying to equalize things.

  16. I think that the property taxes for more expensive homes, at least where Laura and I live in NJ, does not push up the school districts. Expenditures per student are higher in the lower ranked school districts and less per student in the higher ranked ones. (I should say, in our county.)

  17. No one else has said it, so I guess I will. Is it in fact a documentable and proven fact that moving to a neighborhood in a “good school district” (whatever that means, other than a wealthy population and therefore high property taxes) in fact results in a “better future” (whatever that means, other than some kind of imagined economic security and the presumed happiness that brings) for kids?
    Really? That house I can’t really afford is going to ensure a better future for my child? (Keep in mind that we’re not talking about people moving from Compton to Beverly Hills here, but from one middle class suburb to another one.) I think the entire logic of this position is being fueled by fear. Over and over again, parents in America are being assured that if they just spend more money (this stroller, that camp, this neighborhood, that school), they will be able to control the uncertainty of the future, and their children will be happier and their own lives stress-free.

  18. Yes, we’d all probably be better off if we worried less about spending more to get to a better district. If we’d just grab our value stem removers and put on dark clothes, we could make our world a better place for our children.

  19. “If we’d just grab our value stem removers and put on dark clothes, we could make our world a better place for our children.”
    MH,
    You’ve stumped me again. What on earth is a “value stem remover”?

  20. It is an unfortunate truth about education, but the wealthier the school district, the better the test score, graduation rates, college attendance rates, and every quantifiable measure of school performance. It is the Iron Law of Money and Schools. SES is THE number one variable for predicting school outcome. Now, it may not be the schools themselves that produce these outcomes. It might be the environment of the community, parenting styles, the homogeneous community, the fewer number of problem children who suck up lots of expensive remedial services, or the extra tax money which buys lots of extras in the school. Who knows what it is? But there is definitely an extremely strong correlation between SES and school outcome.
    And parents know that. So, they stretch too far and buy a home that they can’t afford.
    I don’t think that the school-seeking middle class family were a cause of the housing bubble. Warren doesn’t address this in her book.
    re: consumption on clothes, toys, food, etc.. Warren does say that it may appear that we spend a lot more on crap than we did in the past, but the data doesn’t show that. Things are much cheaper than they were in the past.

  21. “It might be the environment of the community, parenting styles, the homogeneous community, the fewer number of problem children who suck up lots of expensive remedial services, or the extra tax money which buys lots of extras in the school.”
    …tutoring, educational summer activities, afterschooling, professional parents who know course content and where the hoops are and how to jump through them.

  22. “…and where the hoops are and how to jump through them.”
    Never underestimate the power of knowing “how to be” and how to navigate the professional world or the middle/upper class world. There is a lot of class-based knowledge that is unspoken and assumed that is transmitted almost by osmosis to the next generation.

  23. I acknowledge the correlation of socioeconomic status and test score/grad rates, but I still don’t buy the argument that buying more expensive houses in wealthier neighborhoods is the way to give our children a “better future.” (And again, I’m assuming we’re not talking about families who live in neighborhoods beset by drugs and crime and gangs, but instead respectable middle class suburbs that just aren’t as wealthy as nearby towns.) I think my own kids’ test scores really won’t change much if we moved, nor would they be less likely not to graduate, nor less likely to attend college. And that’s because they get support for these things at home. And even if they choose to learn a trade instead of earning an advanced degree, all the power to them. The families who work in construction at my kids’ school are doing as well as the ones who work in software.
    Furthermore, are we just abandoning all those other kids, moving as far away from them and their less financially fortunate families as we possibly can? Sorry if this sounds hopelessly idealistic, but I truly don’t believe that I’m harming my children by keeping them in a diverse public school and participating in those schools (despite having a full time teaching job) when I can. If all the families who moved away decided to stay and get involved even just a little bit, they’d be helping more than just their own child.

  24. I’m assuming we’re not talking about families who live in neighborhoods beset by drugs and crime and gangs, but instead respectable middle class suburbs that just aren’t as wealthy as nearby towns.)
    I doubt that hurts kids either. However, I do see some risk, possibly because I live in an area which has seen a very large drop in population over the past 40 years. Respectable middle class neighborhoods and suburbs do decline, drastically in some cases. The wealthier the area, the less likely the drop.

  25. My husband and I are considering buying a home, live in Laura’s area and want to stay in the area. School district quality versus house cost is a concern for us, but we’re not sure how much of our thinking conforms to the reality of the cost-benefit analysis that Warren reports.
    So I’ve constructed a spreadsheet of the local high schools, drop out rates, SAT scores (25th and 75 percentile averages) that will also include census information from the townships (average income, education, etc.). Still in data gathering phase (can we say procrastination?), but the raw data are interesting. The differences in high school quality is astounding. One problem in our area is that there are no “average” schools. There are only good ones and fairly terrible ones.
    One explanation for the terrible districts is not that the incomes in those areas are not upper middle class (they are, although have more income diversity than in the higher performing districts), but that the upper incomes predominantly send their kids to private schools. This functionally limits the income diversity in schools of districts that are middle-upper middle class.
    Clearly, these sorts of issues are variable across states, but they do seem particularly important for states like NJ, with a population that feeds to major urban areas.

  26. Wasn’t Laura recently discussing moving from a fairly-middle-class suburb to a suburb dominated by a slightly higher income bracket, because of quality of specific academic programs? (I think it was gifted programs for Jonah?) In this case the family perception may indeed be that a slight change upward in terms of home price could bring large educational benefits. In more extreme cases I have seen families move school districts to be in the district with the great arts program/soccer team/science program, etc. Sometimes it gets pretty specific.
    When it comes to determining whether families worried about education contributed to the housing bubble, here’s how I view it: the housing bubble is all about the banks, somewhat suddenly, loaning way too much money to people. In that scenario, any dynamic that was already present that contributed to housing decisions led to sudden, arms-race style price increases. So, did school quality contribute? I would say partially, yes. As did many other things.

  27. Nobody has mentioned this yet, but, at least locally, I think part of the push to be in the best district stems from the residual effects of federal busing and desegregation efforts. Around here, the better school districts tend to be located far enough away from any predominantly African American neighborhood that a federal judge couldn’t have tried to merge the two areas. The good districts that were smaller and closer to the city got federally smushed together with not so good districts. People who live in the wealthier areas can bemoan the attitude all they like, and I’m sure most of the negative effects are due to a self-fulfilling prophecy, but none of that will mean much to the family with kids in a school where physical assault is now a major problem and who has seen their wealthier neighbors move to more distant suburbs that they are now unable to afford because their current house won’t sell. People learned to jump first, think later.

  28. When we were buying a house and considering the possibility of moving out of the district where we were renting, I looked at the school districts. But I didn’t look in terms of graduation rates, SAT scores or anything like that. I looked at size.
    Our district has a HS that has under 1000 kids. I didn’t want a big HS for my daughter. We also didn’t want a long commute, which also limited our possibilities. And then I also declined to live in the district where the kids are too rich and drink too much. I have so little patience for that. So I ended up in the middle.

  29. Our district has a HS that has under 1000 kids. I didn’t want a big HS for my daughter.
    Big is relative. The whole multi-district county I grew-up in had less than 1000 kids even counting the Catholic schools. My graduating class and the year behind us didn’t fill a school bus.

  30. curious monolith,
    I made it about 2/3 of the way through that article, and I couldn’t help but notice that while SF seems to have a lot of good public elementary schools (like DC, actually), the public middle and high schools aren’t so hot. Perhaps coincidentally, middle and high schools tend to be less welcoming places for parent involvement.

  31. And then I also declined to live in the district where the kids are too rich and drink too much.
    If you are implying those two traits are linked, I think you are in for a surprise.

  32. San Francisco also has that nutso lottery system. My friends just applied and their kid did not get into any of their top SEVEN picks, and there is no fallback to your nearest neighborhood school, either–you have to lottery.

  33. But the lottery system does randomize the benefits of wealth and privilege. If those families who did not reap the benefits they expect through the luck of the draw nevertheless committed themselves to be involved with the public school they drew (instead of withdrawing and paying for private school instead), chances are all the public schools in SF would be pretty good places.
    It is true that middle and high schools can be less welcoming to parents (and also that parents can get burnt out by then). But there are always teachers who will welcome it if you make the effort to find them, and lots of different ways to be involved. The more parents, the bigger the difference. It’s not a utopia but it works toward building a world that I’m going to choose over the world of the fancy neighborhood.

  34. If those families who did not reap the benefits they expect through the luck of the draw nevertheless committed themselves to be involved with the public school they drew (instead of withdrawing and paying for private school instead), chances are all the public schools in SF would be pretty good places.
    Yes, and if my desk weren’t made of plastic covered particle board, my office would be impressive.

  35. Well, none of this would even be a discussion if we as a country actually showed some commitment to education, as opposed to shoveling all our cash down the hole of providing unsustainable, wasteful health care to the elderly (for example).

  36. I think my own kids’ test scores really won’t change much if we moved, nor would they be less likely not to graduate, nor less likely to attend college. And that’s because they get support for these things at home.
    I wonder a bit how old your kids are. Mine is 4.5 so I can’t say but anecdatally, I know bright happening kids who moved from an area that was pretty stereotypically soccer-mom territory to a much more rural area where the graduation rates are lower, university acceptance rates are lower, etc. They moved right when two of them were about to hit the prime-peer years of 13 and 14 years old.
    Two years later, I see the impact. One tried to register for all non-university-track classes because that’s where her friends were; when her family intervened she brought home Cs in order to try to reach the same goal. The other has been cutting math to drink beer because all his friends do, which came up when his grades came home.
    Family is not the only influence, particularly the older you go. Does that mean we all have to buy into the best districts? Of course not. But you need to remember that if your kids’ friends are not into school, it may well be a factor in their success.

  37. “part of the push to be in the best district stems from the residual effects of federal busing and desegregation efforts housing and school segregation.”
    Fixed.

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