Monday, May 05, 2008

There's no fat to trim, actually.

Harvard Magazine Forum:
The Middle Class on the Precipice
Rising financial risks for American families
by Elizabeth Warren



...Today the median income for a fully employed male is $41,670 per year (all numbers are inflation-adjusted to 2004 dollars)—nearly $800 less than his counterpart of a generation ago...

...If families really are blowing their paychecks on designer clothes and restaurant meals, then the household expenditure data should show them spending more on these frivolous items than ever before. But the numbers don’t back up the claim.

A quick summary of the data from the Bureau of Labor Statistics’ Consumer Expenditure Survey paints a very different picture of family spending...

...So where did their money go? It went to the basics. The real increases in family spending are for the items that make a family middle class and keep them safe (housing, health insurance), that educate their children (pre-school and college), and that let them earn a living (transportation, childcare, and taxes).

...Fully 75 percent of family income is earmarked for recurrent monthly expenses. Even if they are able to trim around the edges, families are faced with a sobering truth: every one of those expensive items—mortgage, car payments, insurance, childcare—is a fixed cost. Families must pay them each and every month, through good times and bad; there is no way to cut back from one month to the next, as can be done with spending on clothing or food. Short of moving out of the house, withdrawing their children from preschool, or canceling the insurance policy altogether, they are stuck.

In other words, today’s family has no margin for error. There is no leeway to cut back if one earner’s hours are cut or if the other gets sick. There is no room in the budget if someone needs to take off work to care for a sick child or an elderly parent. Their basic situation is far riskier than that of their parents a generation earlier. The modern American family is walking a high wire without a net...

...The one-two punch of income vulnerability and rising costs has weakened the middle class, at the same time that the revision of the rules of financing delivers a death blow to millions of families each year. Since the early 1980s, the credit industry has rewritten the rules of lending to families. Congress has turned the industry loose to charge whatever it can get and to bury tricks and traps throughout credit agreements. Credit-card contracts that were less than a page long in the early 1980s now number 30 or more pages of small-print legalese. In the details, credit-card companies lend money at one rate, but retain the right to change the interest rate whenever it suits them. They can even raise the rate after the money has been borrowed—a practice once considered too shady even for a back-alley loan shark. When they think they have been cheated, customers can be forced into arbitration in locations thousands of miles from home...

...The family that might manage $2,000 of debt at 9 percent discovers that it cannot stay afloat when interest rates skyrocket to 29 percent. And the family that refinanced the home mortgage to pay off other debts suddenly faces escalating monthly payments and may find itself staring at foreclosure. Job losses or medical debts can put any family in a hole, but a credit industry that has rewritten the rules can keep that family from ever climbing back.


In orthodox life, private school tuition is the albatross hanging around people's necks. The Rabbis do not allow orthodox children to attend public schools, and those who do send their kids to public schools are threatened with shunning both for them and for their children (or having their conversions retroactively annulled) - and forget their marriage prospects. Most families even agree with the Rabbis reasoning on the public school ban. Therefore in order to get rid of the one factor that is the biggest economic drain on a family, the only real option is to form homeschool cooperatives.

But in order to form homeschool cooperatives, one parent has to be stay-at-home. Since in many cheredi communities men refuse to seek gainful market rate employment, this is going to be a problem. A radical shift of priorities is going to have to take place - and people are going to have to be willing to walk away from dysfunctional communities that insist on having a significant portion of the able-bodied population be parasites off the rest of the community, while burdening mothers who work with outrageous private school tuitions. Even among Modern Orthodox households that have one or two parents in good jobs with benefits, this simply cannot go on. There is no more equity in our homes to borrow - no more discretionary income to give up. The paradigm has failed and must be replaced with an economically viable new plan.

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