Foresaw the housing market collapse by what, four years? And its commentary on the state of work and the consumer economy is just as dire. An important and criminally overlooked book. (Clears up a lot of misconceptions, too -- one highlight is the early chapter that completely demolishes the "overconsumption" myth.) ( )

I read "The Two-Income Trap" several years ago, but I still have a pretty clear memory of it.

The book, by the Harvard Law School professor who is now heading the banking oversight agency for the Obama administration, lays out a compelling case for why families fet into economic trouble. And it's not what you might think.

There are four expenses that suck the resources out of families: housing, education, medical costs, and child care. It takes two incomes to make it for families these days, and the loss of a job by one partner (often caused by a medical condition that ceases to be covered by insurance once the job is lost) can send the family into bankruptcy.

Warren has a clear-headed understanding of why people end up in bankruptcy, and it usually isn't because they are profligate spenders. She lays out her opposition to legislation in Congress to tighten bankruptcy rules.

She recounts a meeting with Hillary Clinton at which the then-senator expressed horror at the situation and pledged not to support the "horrible" bill. Then she turned around and voted for the legislation anyway. That was the point at which I stopped supporting Clinton's political ambitions. ( )

The American expansion after WWII, the age of organization man, has seen a large expansion of the middle class. Since the 1970s, this growth is under attack, mainly due to government failure. In contrast to Europe, health, education and crime are seen as private matters. People receive the level of education, security and care they pay for.

The two-income trap that gives the book its title consists of spending most of both incomes on mortgage, healhcare and education, essentially fixed costs. If one or both partners lose(s) his or her job, gets sick or has some sort of accident, the household has no reserves left to absorb that blow, which leads to a spiral of debt and ulitmatively bankruptcy, an event more and more common in America.

The rise of bankruptcies is linked to the ease of access to credit (credit cards, mortgages). Regulation used to bind banks to be rigorous in checking the creditworthiness of the applicants. Deregulation opened up the high risk, high interest mortgages and credit cards. Banks know that they will not recover the principal of many of those loans. The high interest paid (in the double digits) more than makes up for it. Unfortunately, the most vulnerable in society are the most affected by it. Women and minorities.

Which explains why the US political system has yet to develop sensible countermeasures (such as equal public education and healhcare, and usury laws). The Republicans are safely in the pockets of big business, as are many Democrats. It looks like the next administration will at least try to make progress on public healthcare. Resolving the debt crisis and restoring US creditworthiness will take many years, if the trend can ever be reversed. Recommended. ( )

An interesting book. The mother-daughter authorial team asks a simple question: if so many families now comprise two working parents, as opposed to the single-breadwinner model from a generation or two ago, why are so many of these two-earner families going bankrupt?

The authors identify a range of reasons -- less job security, threats of catastrophic illness, of course divorce -- but their main line of argument is straightforward, if initially counterintuitive: two-income couples are not wastrels who're blowing their incomes on luxuries, they're instead committing themselves far too heavily to fixed costs such as car payments, education, and most of all, big, fat mortgages.

Why? In large part, to get into decent school districts.

The unstated but omni-hovering thesis of this book is that middle-class parents in the USA will pay almost any price they can to get away from bad -- read urban -- schools.

On the whole, I think the authors are too soft on middle class people who spend above their means, and they're far too eager to advocate sweeping government regulations to mitigate some of the problems they identify. Never the less, they make a strong case for a systemic problem, and they've obviously nailed one aspect, i.e. the schools. I only wish they'd have followed out the implications of this line of argument rather than turning to legislation as the only plausible solution.

Here are some quotations that support the schools-as-root-cause line of thinking:

"Why would the average person spend so much money on a home? For many parents, the answer came down to two words so powerful that families would pursue them to the brink of bankruptcy: safety and education. Families put Mom to work, used up the family's economic reserves, and took on crushing debt loads in sacrifice to these twin gods, all in the hope of offering their children the best possible start in life" (pages 22-23, italics in the original)

"By way of example, consider University City, the West Philadelphia neighborhood surrounding the University of Pennsylvania. In an effort to improve the area, the university committed funds for a new elementary school. The results? At the time of the announcement, the median home value in the areas was less than $60,000. Five years later, 'homes within the boundaries go for about $200,000, even if they need to be totally renovated.' ... in five years families are willing to pay more than triple the price for a home, just so that they can send their kids to a better public elementary school." (pages 24-25, italics in the original)

"Bad schools impose indirect -- but huge -- costs on millions of middle-class families. In their desperate rush to save their children from failing schools, families are literally spending themselves into bankruptcy. The only way to take the pressure off these families is to change the schools.

The concept of public schools is deeply American. It is perhaps the most tangible symbol of opportunity for social and economic mobility for all children, embodying the notion that merit rather than money determines a child's future. But who are we kidding? As parents increasingly believe that the differences among schools will translate into differences in lifetime chances, they are doing everything they can to buy their way into the best public schools. Schools in middle-class neighborhoods may be labeled 'public,' but parents have paid for tuition by purchasing a $175,000 home within a carefully selected school district." (page 33)

"It is time to sound the alarm that the crisis in education is not only a crisis of reading and arithmetic: it is also a crisis in middle-class family economics. At the core of the problem is the time-honored rule that where you live dictates where you go to school. Any policy that loosens the ironclad relationship between location-location-location and school-school-school would eliminate the need for parents to pay an inflated price for a home just because it happens to lie within the boundaries of a desirable school district.

A well-designed voucher program would fit the bill neatly. A taxpayer-funded voucher that paid the entire cost of educating a child (not just a partial subsidy) would open a range of opportunities to all children. With fully funded vouchers, parents of all income levels could send their children -- and the accompanying financial support -- to the schools of their choice -- or the neighborhood of their pocketbook. Fully funded vouchers would relieve parents from the terrible choice of leaving their kids in lousy schools or bankrupting themselves to escape those schools." (page 34)

"School change, like any other change, would entail some costs. More children might need to take a bus to school, pushing up school transportation expenses. On the other hand, many parents might actually shorten their own commutes, since they would no longer be forced to live in far-flung suburbs for the sake of their children. The net costs could be positive or negative.

An all-voucher system would be a shock to the educational system, but the shakeout might be just what the system needs. In the short run, a large number of parents would likely chase a limited number of spots in a few excellent schools. But over time, the whole concept of 'the Beverly Hills schools' or 'Newton schools' would die out, replaced in the hierarchy by schools that offer a variety of programs that parents want for their children, regardless of the geographic boundaries. By selecting where to send their children (and where to spend their vouchers), parents would take control over schools' tax dollars, making them the de facto owners of those schools. Parents, not administrators, would decide on programs, student-teacher ratios, and whether to spend money on art or sports. Parents' competitive energies could be channeled toward signing up early or improving their children's qualifications for a certain school, not bankrupting themselves to buy homes they cannot afford." (page 36) ( )