Conversation with Elizabeth Warren, p.

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Elizabeth Warren Interview: Conversations with History; Institute of International Studies, UC Berkeley

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The Two-Income Trap

Let me show your book again, The Two Income Trap. In this book are a couple of pages on a meeting you had
with Hilary Clinton and her position on some of these issues, and how it evolved. Tell our audience a
little about that, because what is quite compelling about the story is that as smart
as Mrs. Clinton is, and as a person with the right values, that over time, as her
constituency changed, she changed.

Now don't give the story away!

The story is that when the bankruptcy bill is first being proposed, President Clinton appoints some folks, the
commission gets started. And in 1997 the commission delivers its report and says, "We need some changes to the
bankruptcy laws." Frankly, they were a little more pro-consumer. "We need some pro-consumer changes here, and
[in] a few [cases], let's close up a couple of loopholes." The credit industry said, "No, no, no." Credit industry says,
"We want to make it a lot tougher for families to go bankrupt." Quite frankly, bluntly, the Clinton administration
was quietly supporting it. Remember that whole notion of the "New Democrats": business can count on us, the
banks can come to us and we want to be their friends? The idea of a bankruptcy bill was, "It's a bunch of technical
changes. Who gets hurt? A bunch of people who nobody pays any attention to. We'll show that we can play ball,
[and] it'll go below the radar screen, nobody will ever learn about it."

So, I wrote an op-ed that ended up in the New York Times about how the bill was going to disproportionately affect women and particularly
single mothers with children, and Mrs. Clinton picked up the op-ed. I got a call about a week or two after the op-ed ran, and they said Mrs.
Clinton was going to be in town giving a speech and would I be willing to meet with her. I said, "You bet." I said, "What's she want to meet
about?" And they said, "She would like you to talk to her more about bankruptcy. Would you come and be prepared to do that?" So, I show
up, we meet in this tiny, little room behind the stage in the hotel after she's given her speech, and I'm armed. I've got my little graphs and
charts and my whole deal.

And all those debating skills!

And all those debating skills. And I'll tell you, she is probably the quickest person I ever have spoken with in my life about this. Boy, I'd put it
down and she'd ask questions, she'd ask smart questions. She didn't know it but she got it fast, to the point that I'd be ready to flip the next one
and she'd anticipate. She'd say, "So, that means what's going to happen on this next clause?" That's exactly right. She got it. So, we stand up
at the end of this meeting and she's being whisked off to the airport to go back to Washington, and she said, "We must stop this terrible bill."
And we stand there, we get our pictures taken together, and I think, "This is great." So, I later hear -- she goes back to Washington -- I later
heard from somebody who worked in the White House -- they described it as, there were skid marks in the hallway from people changing
their position on this bill when Mrs. Clinton got back. People who'd been pushing, pushing, "Yeah, we're going to support this bill," to [sound
of brakes being applied] "No, no, no, terrible bill, terrible bill." And to Mrs. Clinton's credit, when the bill passed the House and the Senate in
2000, one of President Clinton's last acts as President of the United States was vetoing that bill. So, she, I believe, single handedly kept it
from becoming law.

But the credit industry, of course, had not given up. Bush moved to the White House, they now have Republican-controlled Senate, House
and White House, and Mrs. Clinton was now Senator Clinton, and the bankruptcy bill came up again, and this time Senator Clinton voted in
favor of it. It was the same basic bill as the one her husband had vetoed, but now as Senator Clinton ...

From New York.

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... from New York, where there are strong banking interests, and who was very concerned about raising money, and very concerned about
what she saw as her business constituency -- she took a different position on the bankruptcy bill.

My own view of that was less about anger and more about despair, because if Hilary Clinton couldn't resist the pull, the demands, of a well-
financed lobbying group like that, then who would? Would there be a single senator or a single representative left to be there to do the
people's business?

Now I should say when the bill ultimately passed in 2005, she was not in the Senate that day but she issued a very strong press release saying
that she would opposed the bill and thought it was a bad idea. So, perhaps as she developed a stronger position her view on it changed, but it
is a reminder of how powerful money is in Washington.

What then is the political answer? Is it information, is it organizing, is it blogging, which you're now
doing on Talking Points Memo Café?

I'll back up a little bit for the answer. I believe now in guerilla warfare. I'll go anywhere, I'll do anything to talk about these issues, and it's a
lot more than bankruptcy. It's about the economics of the family, it's every part of it.

So, part of the answer absolutely is political. Part of it is about raising awareness, part of it is why I sit here with you today, instead of
spending this time back in Cambridge churning out one more number that nobody looks at. That's part of it, and part of it is the world is
changing out there.

You know, you can say we don't have to worry about those folks who go bankrupt -- technical amendments, "who cares" -- for a while, but
we reached a point in America a few years ago where more people went through bankruptcy than graduated from college in a single year!
More people filed for bankruptcy than had a heart attack. More children lived in homes that were filing for bankruptcy than in homes that
were filing for divorce. What that starts to tell you is there's not anybody left in middle-class America who either hasn't gone bankrupt or
doesn't have a brother, or a cousin, or a teacher, or a sister, or a dear friend who has lost a job, who has gotten sick, who has had to go through
this process.

To step beyond bankruptcy, we're on target now to see 1.4 million families thrown out of their houses this year in mortgage foreclosure. One
in every seven Americans, right now, is dealing with a debt collector, has debts they can't pay. We hear the word from Washington, "Oh, it's
all about personal responsibility," over and over and over, but at some point the families themselves start to say, "Uh-uh, no good. This
answer doesn't work." Indeed, I should point out, some of the family-oriented groups that have aligned themselves politically with
conservatives have backed off and said on bankruptcy issues, on credit card issues, on payday loan issues, on home mortgage issues,
Congress has got to go a different way. Now, have they yelled it from the rooftops? No, but the cracks are starting to appear.

Let's go back and talk about this bigger picture where the middle class finds itself, both from your own
personal experience and from what you were experiencing as a lawyer/academic studying these issues. What
we're witnessing beginning in the seventies is a major economic transition in this country affecting the
family, and everybody's running to catch up. Talk a little about it. Give us that big picture.

In the second half of the twentieth century the single most important economic thing that happened is that millions of mothers poured back
into the work force, and that's the only thing that kept family income rising. Starting in about 1970 a fully employed male's wages completely
flattened out, and in fact, a fully employed male today, on average, median, earns about $800 less than his dad earned a generation ago. So,
[for] the family, unlike the first seventy years of the twentieth century, where productivity went up and wages went up, there becomes a split.
Wages flatten for men and the family does better only if they can put two people on the workforce, and the norm switches from a one-earner
family to a two-earner family, for those who are lucky enough to have it. Now if that were the only thing that's happened, you'd think we
should be richer. We should have more savings, we should have very little debt. But expenses in the same thirty-year period far outstripped
what the families are spending, and I'm not talking about consumer price index.

Here's the division. I want to compare a mom, dad and two kids today with a mom, dad and two kids thirty years ago, when you started a
family in 1971, as I did. What happens on spending? Start with the consumption. This is what everyone [supposes], again, in the popular
media, why are people in trouble: too many GameBoys, too many iPods, too many $200 sneakers. In fact, families today, adjusted for
inflation, spend less on clothing, less on food, including eating out, less on furniture, less on appliances, than they spend a generation ago.
Where they spend more is for three-bedroom, one-bath house. The median family is spending 80% more on mortgage payments, adjusted for
inflation, than they spent a generation ago. They're spending about 75% more for health insurance than they spent a generation ago. Because
today they need two cars instead of one, they're spending about 60% more on cars. They're paying for child care, which of course, they didn't
a generation ago.

Because the mother was home.

Because mother was home, and they are paying more for taxes because of progressive taxation: when you've got two incomes that second one
is being taxed at a higher rate than if they were being taxed separately. So, a generation ago -- let me see if I can do this as a picture. The
median American family in the United States spent about half of its income on those basic fixed expenses: the mortgage, health insurance,
transportation, taxes, nothing on child care. Today the median two-income family is spending 75% of their income on those five basic
expenses, and with two people in the work force they actually have fewer dollars left over than their one-income parents had a generation ago

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to cover everything, to cover all the flexible things, food and clothing and savings and vacations, and all the other kinds of expenses that
come up. So, what we have today is two people working full-time, flat-out, hard-bore, and they actually have less money to spend than one
person working full-time just one generation ago.

And the older system had a built-in backup, and this system does not because both are already working.
Talk a little about that, because this is a very vulnerable family that we have today because of the job
market, healthcare, illness, and so on.

That's right. So, what's happened is not only has the picture changed on the family budget but now take a look at the risk side. A generation
ago, if dad got sick or got laid off, mom -- and that's who it usually was -- didn't just sit home and wring her hands, she went to work. And
yeah, she didn't make as much money as moms make today when they go to work, she didn't have as much experience, but every dollar she
made was a new dollar, a dollar that had not been built into the family budget. So, between unemployment insurance and the new dollars that
mom could bring in, they could survive a period of unemployment, a period of illness. They had a little extra something. A child who had
extra expenses, mom [would] go to work, you could add a little extra on.

Today's family is already full out. They've got both people in the work force full-time. Think about it for a second: it creates its own
vulnerabilities. Today, a family, instead of having to have fifty-two paychecks to know that they'll be able to make the mortgage payment and
keep the health insurance -- remember that budget, they're spending 75% just to make the [basics] -- that means they've got to bring home one
hundred and four paychecks. And that means they have double the risk someone will get laid off, double the risk that somebody will get too
sick to go to work, and here's the new one that's coming. Today if a child gets sick, or if grandma falls and breaks a hip, someone's got to take
off work to be with them. A generation ago, you already had someone at home to be able to fill that other role. So, it could be bad if a child
got sick but it didn't have an income effect. Mom was home, mom could take care of a sick child. Today someone's got to take off and for
most jobs that means they lose income.

So, Jacob Hacker's work in The Great Risk Shift -- what Jacob shows is over this same thirty-year period that I'm looking at, what's called
income volatility, the odds that you will see a 20% drop in your family income, which would be pretty strong if you already committed 75%
of your income on these expenses, has climbed over this same thirty-year period. So, put it all together, it's like a pressure cooker. People are
more likely to lose jobs than they were before ...

And the jobs are going abroad.

The jobs are going abroad. When they lose jobs, statistically the odds that they'll get back a job that pays as well as the job they lost has gone
down, compared with a generation ago. They run the risk that if someone in the family gets sick that they're going to lose income. These are
families that are losing health insurance, losing retirement, so what we're really watching here is a family unit that's getting more and more
economically vulnerable. They're working harder than ever, they've got two people in the work force, they're trying to do homework at night
with the kids and hold it all together, and yet economically every part of the game is loaded against them.

You point out in this book and in your writings that little pieces of this story, for example, the focus
on the family, the concern about education of one's children, the need to get in the right neighborhood
to get the right school, the commitment to a mortgage that puts you even more on the edge -- these things
impact this very vulnerable situation even to a greater extent over time, and it's all about "I want my
kids to have the best education."

"I want my kids to have a shot of making it in the middle class." This is what it's about for parents. And so, what does that mean in America
today, because of our peculiar way of financing higher education? It means you've got to get to the right zip code, because the right zip code
will determine the school assignment for your child. And what's happened is prices have shifted on those zip codes.

Here's [another example]. On this one the government doesn't have data going back quite so far, so the numbers are a little bit off, but starting
in 1983 they've got data. When you compare the rise in housing costs for families with no children, households with no children, singles,
anyone who doesn't have children at home, minor children, and households that have minor children, households without children from 1983
to 2005 saw a 50% increase in what it cost to buy their housing, their three-bedroom, one-bath. Families with children saw a 100% increase
in that same time period. Why? Not because families with children have a bigger need for granite countertops or spa bathrooms, but because
housing is the substitute way to buy into a decent school system. We pulled out the studies in this that show that housing prices will reflect
things like a five-point difference in third grade reading scores. [This difference] will translate into thousands of dollars of difference in the
price of houses in neighborhoods that are otherwise matched for all their amenities and sidewalks and police service, and everything else.
And I want to be clear here. This is white families, African-American families, Hispanic families, Asian families, it's across every spectrum.
Families with children are tightening the belt one more notch, are working extra hours, are sending both people into the workforce, to try to
get into the best possible school district they can get their children into. Families are in financial trouble, not because they're irresponsible but
because they're too responsible. They're trying to do it for the kids.

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