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(dramatic music)

- I'm Mary Ann Mason,

I'm the Dean of the Graduate Division,

and I'm pleased, along
with the Graduate Council,

to present Elizabeth Warren,
who is this year's speaker

in the Jefferson Memorial Lecture series.

As a condition of this bequest,

we're obligated to tell
you how the endowment

supporting the lectures
came to UC Berkeley.

The Jefferson Memorial Lectures
were established in 1944

through a bequest from
Elizabeth Bonestell,

and her husband, Cutler L. Bonestell.

A prominent San Francisco couple,

the Bonestells cared deeply for history,

and had hoped that the lectures
would encourage students,

faculty, visiting scholars and others

to study the legacy of Thomas Jefferson

and to explore the values
inherent in American democracy.

Past lecturers, Ambassador
Jeane Kirkpatrick,

Senator Alan Simpson,
Representative Thomas Foley,

Walter LaFeber and
Archibald Cox have delivered

Jefferson Memorial Lectures
on early American history

about Jefferson himself and
on American institutions

and policies in economics,
education and the law.

And now a few words
about Elizabeth Warren.

One of America's leading
commentators on consumer issues

and the law, Elizabeth Warren
has been an outspoken critic

of America's credit economy,

which she has linked to the
continuing rise in bankruptcy

among the middle class.

No one in the audience, I'm sure.

Her critical analysis of
Congress's latest revision

of America's national bankruptcy law

has received wide attention in the media

as well as in academic and policy circles.

At Harvard Law School,
Warren's courses include

contract law, bankruptcy
and commercial law.

She said recently that
she has spent decades

writing in academic books and
teaching an entire generation

of law students about the rules of money.

Those rules include the formal
statutes of commercial law,

the policies inherent in them,

and the ethical problems
that they can produce.

Warren is a frequent
contributor to articles in

The New York Times, The Washington Post,

and Women's eNews, and her
commentary appears regularly

on National Public Radio's news program,

All Things Considered,

and on the internet forum,
The Huffington Post.

After earning a BS from the
University of Houston in 1970,

Warren was awarded a J.D.

from Rutgers University-Newark in 1976.

She joined the faculty of
Harvard University in 1992

and has served as the

Leo Gottlieb Professor of Law since 1995.

Prior to Harvard, Warren taught at

the University of Pennsylvania Law School,

the University of Texas Law School,

the University of Houston Law Center,

the University of Michigan,
and Rutgers School of Law.

Warren has channeled her
expertise in commercial law

into numerous other
professional activities.

She acted as chief adviser

to the National Bankruptcy
Review Commission

from 1995 to '97.

She served three terms on

the Federal Judicial Center Committee

on Judicial Education, 1990 to '99,

and since 1995, Warren has
been the United States advisor

to the Transnational Insolvency Project.

In presenting its nomination
of Professor Warren

for the lectureship,
the selection committee

spoke of Warren's
prominence as a commentator

in public discourse on bankruptcy
and other consumer issues.

A scholar of great originality

and insight into commercial
law and a law teacher

and lecturer of exceptional distinction.

According to committee
chair Harry N. Scheiber,

the Riesenfeld Professor
of Law and History,

"At a time when the social safety net

"is no longer taken for
granted by Americans,

"its unremitting attack in Washington

"and many state capitals,

"Elizabeth Warren's unique importance

"as a researcher and writer,

"concerned with changing
income distribution

"and the imperiled condition
of the nation's social welfare

"makes this lecture one
of special importance

"to the campus community."

I should say personally that
I read her book last year,

"The Two-Income Trap",

and I would put it among my very favorites

of policy books that both made sense

and are going to change policy.

So it gives me very great pleasure

to welcome Elizabeth Warren.

(audience applauding)

- Thank you, Dean Mason.

Thank you, members of
the Berkeley faculty,

Berkeley students and Berkeley friends.

It's an honor to be invited
to give the Jefferson Lecture,

especially following the footsteps

of such esteemed people.

And it's also a particular
pleasure to be here.

I appreciate the hospitality,
it has been extraordinary,

and the good weather,

since I was on a plane
that had to be de-iced

before it could take off,

it really does seem that
I've landed in heaven.

So it's a special treat to be here today.

I want to say,

I like to talk about the
things that I care about

and that I'm passionate about,

and I only get nervous about the fact that

I may not tell you all the
things that I want to make sure

that you know and I may
not be able to say it

as clearly or distinctly,

because I want you to hear these things,

but today, I feel a special anxiety

as I get ready to do this because
the only two conversations

that I have had running
throughout the day today

have been how appalling
it is to use PowerPoints,

and about boring lectures and
falling asleep during them.

So having my confidence
boosted before I came in here,

I will approach this somewhat gingerly.

What I wanted to talk about
today is I wanted to start

by talking about what I
think is the single most

important economic
shift of the second half

of the 20th century in the United States,

and that is that millions of mothers

poured into the full-time paid workforce.

A woman in 1970

who had a 16 year old child

was less likely to be in the workforce

than a woman in 2003

who had a six month old child at home.

It was a profound shift in America.

The median family in America,

a married couple family in America,

went over a 30-year
period, median, middle,

from being a one-income household
to a two-income household,

a significant shift.

And so if we had known,
let's say, 30 years ago,

35 years ago, we've been
sitting here in 1970,

and as part of the Jefferson Lecture,

I'd had my crystal ball and I'd said,

"Here's what's going to
happen over the next 30 years.

"Mothers are going to
pour into the workforce,

"take on full-time work,

"they're gonna get better education,

"they're gonna have more work experience,

"their incomes are going to rise.

"They won't get all the
way to where men are,

"but they're gonna make
substantial advances."

Now let's speculate on what
the family will look like

30 years hence, that
is, in 2000, 2005, 2007.

Well the first thing
I would have estimated

is that people would
stop living in suburbs

that are far out.

I would have guessed
everyone would live close in,

that no mother of a six month old child

would commute an hour
and 40 minutes to work.

I would have been, of course,

very wrong in that first estimate.

The second thing I would
have guessed is that families

will be very wealthy.

They're going to have
lots of savings, no debt,

and plenty of vacations, right?

If you've got two people in the workforce,

there's gonna be a lot of extra income.

They're gonna be secure,

there won't be a lot of bankruptcy,

there won't be a lot of default,

nobody's gonna be dealing
with debt collectors,

that's what it's gonna
look like come the new era.

So let's see what happened.

This is all inflation adjusted,

everything I'm gonna do today

is gonna be inflation adjusted,

so we can just make that
assumption as we go forward.

This is what happened to median
income for married families

and this is gonna be my period

to the extent the data permitted.

It's basically gonna be one
generation, 1970 to 1971,

to 2005, 2006.

What happened in a single generation,

from your mom and dad to you, okay,

is what we're talking about here.

And you see how income
goes up for families.

But there was an underlying message

that was not nearly so good,

and that is income went
up for married couples,

but the green line, the one underneath,

you notice that income for
males, fully employed males,

in fact, didn't rise at all.

And if you actually look at the numbers,

a fully employed male today,

once we had adjusted for inflation,

makes about $800 less than his
father made a generation ago,

talking about median earners here.

Okay, so what that begins to tell us

is the first part of the
story, family income rose,

but as I said, it was rising only

because women were going
into the workforce.

In other words, the bump
we got is not a bump

on top of the bump we were getting

because men were also earning
more over this period of time

as they had been in the
seven years that preceded,

but is a bump that comes only because

they put a second worker
into the workforce.

All right, but my prediction
should still hold.

After all, families are getting richer

in the sense of more income over time.

What happened?

Savings went down in
this same time period.

So the one-income family
in 1970 was putting away

about 11% of their take-home pay.

Think about it, week after
week, month after month,

they're putting away about 11%.

By the year 2006, you notice
the line goes below zero.

This is a concept only
Alan Greenspan would love,

negative savings.

The American family
today puts away nothing,

and frankly has been putting away nothing

for the last five or six years.

There's nothing there,
there is no savings.

So savings didn't go
up the way I predicted.

Oh, but something went up,
and that's revolving debt.

I picked revolving debt,

I could have picked any of them,

revolving debt just
basically means credit cards

where you can carry a balance outstanding.

We could have picked consumer debt,

which would also include
car loans and payday loans

and a few other kinds of debt,

we could have included mortgage,

and we would have gotten
much the same picture.

Revolving debt is a
percentage of annual income.

Notice there's supposed to be
some decimal points in there

that aren't showing up very well,

I don't know what happened in
the translation of the program

but basically in 1970, the
median family in America

was carrying about 1.4%
of its annual income

in revolving debt, store charges.

So there was a tiny little
fraction on average.

By the year 2005, the median
family is carrying about 15%

of its annual income in revolving debt,

okay, just true there at the average.

So savings have gone down,
revolving debt has gone up,

and it gives us this picture,

if we put the whole thing together here.

And that is the left side, 1972,

the family, blue, is saving 11%

and carrying debt about 1.4%.

By the year 2005, is
carrying credit card debt

equal to one in every seven
dollars that it earns, 15.6%,

and its savings rate is negative,
eight tenths of a percent.

So think about what that means.

That means, over the last 30
years, in terms of a shift,

the family spent everything
that mom's income

added to the family fisc,

spent everything they used to save,

that 11% that they used to put away,

and went into debt another
15% of income on top of that.

They spent it all.

Now, whoops, I'll do it a little faster,

what did they spend it on?

This was the question that really drove me

in my research over the last few years.

Where do they spend the money?

Because what's interesting here is that

everybody has an answer on this one.

People can tell me exactly
what they spent it on,

people are sure, and so
I started to find out.

The federal government has
actually been keeping data

on how Americans spend their money.

This is done through
the Commerce Department,

large parts of this,

and some of it's due to
the Labor Department,

they've been keeping this
for more than a century

so that you can look at data
on canned meat consumption

going back to the late
1800s and early 1900s.

You can check out alcohol consumption,

you can check out cracker consumption,

it's not all about food,

it's about cars and rugs and furniture

and all sorts of things
that the government has been

collecting data on.

So I found this source for all the data,

right down the bottom in that list,

I don't know what the type
is called, like .01 type,

it tells what the government office is

that's responsible for this
and if you have any questions,

what you're looking for, so
glory be to the internet,

found a phone number and
found a live human being who,

and I started trying to ask about

how you could stabilize this stuff,

and look at it over time,

we all understand how you
could do inflation adjustment,

he said something about,
I said something that,

"Can you disaggregate this so
that you can look at families

"matched for family size?"

That's really the question here.

And the guy said, "Well", he said,

"I guess if you cared,
I could run the data."

And, all of a sudden, my little
heart starts beating faster

and I'm panting into the phone and I said,

"You can actually run the data?"

And he said, "Yeah."

He said, "What kind of family
do you want to look at?"

And I said, "I want to look
at a mom, dad and two kids",

because we have such variations,

there's so many more one
person family households now

and variations, "I want to look
at a mom, dad and two kids."

That will help me stabilize both on age

and family composition.

"I want to look at a mom, dad
and two kids in the 1970s,

"1970, 1971, and I want to
look at a mom, dad and two kids

"in 2003", and I'm trying
to gather these data,

and I want to compare them.

We lump together some expenses,

and I want to be able to
compare them over time,

we'll adjust for inflation,

and figure out how much
more people are spending.

He said, "Great."

So he said, "What's the
first one you want to do?

"What's the first run?"

Because you gotta test this stuff out see

to see if you're getting it
right, and I said, "Clothes,

"how much money are people
spending on clothes today?"

Because all I ever hear about
our designer toddler outfits,

the Gap, $200 sneakers,

all of the fancy things that people are

spending on themselves and
their children in terms of,

we have a closet full, and look,

I think this is probably why.

I can't get a parking place at the mall.

All the dressing rooms are always full.

So it must be that we're
spending too much on clothing.

So he calls me back when
he gets the first data runs

and emails them and he says, "Okay",

he said, "I've got your number."

And I said, "Good, what's the number?"

And he said, "32%."

And I said, "So they're
spending 32% more?"

And he said, "No, they're
spending 32% less today

"than they spent a generation ago",

in inflation adjusted dollars.

And of course, it's like
one of these things,

the first, I have to tell
you, this is really awful,

the first eight times I talked with him

after he gave me this one, I
knew he had the numbers wrong.

Finally, we ran this six
different ways 'til Christmas,

I finally believe that
the numbers were right,

and then we start to thinking,

well, you know, it makes sense.

Everybody shops at discount today,

nobody pays full price
in a department store,

we import a lot more of our
clothes than we used to,

men don't wear expensive
suits, except for my husband,

people don't wear leather shoes,

little children wear sandals
and go barefoot a lot,

on and on and on.

And so the numbers hold that
clothing expenses for a family

climbed up to 32%.

So, okay, food, let's do food,

and let's be sure to put in eating out,

because we all know with
mom not at home anymore,

it's gotta be that families
are spending a fortune

on eating out, and besides that,

in 1972, nobody ate kiwis,

and nobody paid for water, right?

And my grandparents would
be appalled by this, right?

So how much more is today's
family spending on food

than they spent a generation ago?

Same sort of matching,
including eating out,

and the answer is they're
spending 18% less on food

than they spent a generation ago.

And once again, welcome to
the world of big-box stores

where people are buying
on very thin margins,

supermarkets, people eat a lot more pasta

and they eat a lot less
meat than they used to,

there are lots of reasons
that it's actually gone down

in terms of what we spend on food.

Okay, so, I'm beginning
to get the hang of this,

I said, "Appliances, nobody
had an espresso machine

"a generation ago, nobody had
a separate popcorn popper,

"no one had a microwave oven."

And by the way, for each of these,

one of the fun parts of
being able to do research,

can't do this in a lecture,

you can't burden the lecture with this,

but it's to get all the quotes,

to get Robert Frank and Julie
Scherer and all these people

who are explaining why Americans

are in so much financial trouble,

and each time of course
they're explaining about

how much we spend on clothing,

how much we're spending on food,

and how much we're spending on appliances.

So yeah, just in your own
mind, pack all those in.

And of course, you know where I'm going.

52% less on appliances than
they spent a generation ago.

And you get the rest of the pattern.

Per car average, yeah,
we can talk about SUVs,

the size of a living room
and Corinthian leather

or whatever it is you think,

with televisions in the back,

the reality is the per car
cost of owning a car in America

has gone down 24% in 30 years.

Principle reason for it,

Americans today keep a car
more than two years longer

than they kept it 30 years ago,

and repair costs have
dropped significantly.

So the per car, this is
what people really spend,

not what they projected might have spent,

have gone down dramatically.

Whoop, I'm getting a little fast here.

So the question is,

it's a little trigger-happy
with this thing,

so the question is if all
those things went down,

if clothing and food and
appliances and cars went down,

and by the way, I could and a lot of this

with a lot more consumer goods,

electronics went up, surprise,
surprise, 300 bucks, okay?

Dog food went up, baby food went down,

cigarettes went down, liquor
went up, we should watch that,

dry cleaning went down.

The point is there's
either wash or a negative

in terms of kind of ordinary consumption,

the idea that we are an
over-consuming society,

what most people talk about
when they're consuming.

So where is the family spending more money

than they spent a generation ago?

Well, let's start with a
three-bedroom, one-bath house,

that the median income
family is paying for.

And there it is, inflation
adjusted dollars,

a 76% increase in what a
family spends on a mortgage.

That's the mortgage payment,
month in, month out.

Now think about that.

We have much lower mortgage
rates than we had 30 years ago,

for those of you who are
old enough to remember,

but the difference is when
you take out a mortgage

for much more money, the low interest rate

will not make up for that difference.

And I want to emphasize here,

the median sized house that
we're talking about here

did grow slightly in this period.

It grew from 5.8 rooms to 6.1 rooms.

So this is not about, and on average,

this family, this median family either

picked up a second bathroom
or a third bedroom,

but not both.

So for those of you who want to say,

"Oh but I've driven by the McMansions",

"everybody has to have granite
countertops and spa bathrooms

"and media rooms, I've seen them,

"I've seen them, I've seen them",

and compare that with Levittown,

which is more than 30 years ago,

but to give the idea, all that tells us

is that the new housing market has shifted

from the entry level house,

which is what was being built
in the 1950s and 1960s to,

on average, when you
buy a new house today,

it is your third to fourth house purchase,

that is, you've moved up and moved up

until you can afford this bigger house,

in other words, housing is not being built

for 70% of American families,

it's being built for the top
20% of American families,

that's what we see when we see

the new construction that's underway.

For the average family today,

they are about 50% more
likely to be in a house

more than 25 years old

and have all of the attendant
expenses for maintenance,

but just looking at the
mortgage, 76% more for a mortgage

than they had a generation ago.

Okay, well what's the next
one they spent money on?

Health insurance.

This is my family that's healthy.

And my family, because
I've loaded the dice here,

that's lucky enough to have an employer

who sponsors health insurance,

so I'm gonna make an
apples-to-apples comparison

of employer-sponsored health insurance,

how much more two does today's family pay?

And the answer is they pay 74%
in inflation adjusted dollars

more than they did a generation ago.

Third one, cars, increase of 52%.

Okay, Warren, how did you get cars

both above the line and below the line?

Well, I teach commercial
law, but the answer is,

the median family with two
people in the workforce

has moved from being a one-car family

to being a two-car family.

Families living out in the suburbs,

even if they keep a parent at home

can't get by on one car much of the time,

they've got to have two cars

in order to be able to get to the doctor,

to be able to get to the grocery store.

So families spend more
because they have more cars

than they used to have.

Fourth-biggest, remember, I've
got my mom, dad and two kids

and of course the big difference was

mom was at home a generation ago,

today she is out in the
workforce is childcare.

Now I put childcare at a 100% increase.

In fact, you may remember from third grade

that you can't divide by zero,

so I could have picked 1,000% or 1%,

or whatever I wanted to pick here,

it is a new expense picked
up by the two-income family

that was simply not there
for the one-income family.

And we have one more
expense, and it's taxes.

What's happened with taxes is
that progressive tax system,

as mildly progressive as it is,

the first dollar that the
second earner earns is taxed

after the last dollar of the first earner,

so it means that the tax
rate for this economic unit

has gone out by about 25%
in this period of time.

Okay, so there it is, downs and ups.

And I hope there are two
things you notice about

the downs and ups.

The first one is the downs
frankly are all smaller purchases

than the ups are, and that's bad news.

And the second is the downs
are all flexible purchases,

that is, lose your job, get sick,

have a tough month with various expenses,

you cut back on the downs,

don't buy appliances this month,

cut back on food, it's
not that you quit eating,

but you know, there's a difference between

macaroni and cheese and steak.

Families have flexibility in
all the things that shrunk,

they shrunk the things
where flexibility is,

but look at those other expenses,

those other expenses are big,
fixed, relentless expenses.

And so this gets to what I think of

as the heart of what my research
is about up to this point

and that is what these families look like,

and I do look at this the
way a commercial lawyer does,

if this were a little business,

what these families look at.

The single income family
back in the early 1970s

earned less money,

that's the first thing
you'll notice here, right?

They're making about $32,000.

This is all inflation
adjusted dollars again.

And you notice, of course,

they're making a whole lot more money,

making about $63,000,

about $73,000 in the early 2000s.

But notice those five
expenses that I gave you

on the preceding chart,
that's the part that's in red.

The early family is spending
right at half its income

on these big fixed expenses,

these expenses that are
very difficult to cut down,

to trim back, to cope with.

And that family, by the early 2000s,

has committed three
quarters of their income

in order to meet those
five basic expenses.

In fact, you'll notice the math
we've done here, the family,

the two-income family,
the mom, dad and two kids,

the prototype of the family
that's supposed to be

working in America,

the one that's supposed
to be making it all,

by the time they pay
their five basic expenses,

they have less money left
over, fewer total dollars,

than their one-income
parents had a generation ago.

And now from the point of view
of a commercial law scholar,

if I were simply looking at
them and these were businesses,

this is, Business A is on the the far side

and Business B is on the
near side, I'd say, well,

Business B is gonna go
broke a lot more often

than Business A because they
have so much less flexibility,

so much more debt, they're
much more deeply leveraged,

and they're gonna have more
of a harder time economically.

And in fact, that's about what's
happened to these families.

So there's the heart, now I
want to shift this a little bit

to say that's the economics
of what's happened.

We've seen it on the income side,

we've seen what happened
on the expense side,

and we've seen what it did
to the American budget,

how it changed and made this
a riskier economic unit,

but now what I want to do
is I want to press on how

this family in the 2000s
faces in fact even more risk

than these numbers suggest.

All right, first part,
let's think about it

from the income side.

The family of the early 2000s
now has to have two incomes

in order to keep its health insurance,

to make its house payment,
to keep its cars on the road.

That means, just statistically speaking,

if the risk of losing your job
had stayed exactly the same

over the last generation,
the family on the right

has twice the risk of
the family on the left

of not being able to make
the mortgage payment.

Yes, they've diversified,
they won't go to zero,

but the point is, they won't have enough

to make the mortgage payment.

So what we've got now
is we've got families

who don't have to bring in 52 checks

in order to be able to make
the monthly mortgage payment,

they got to bring in 104.

And if either of them loses their job,

they don't make the mortgage payment,

they're flat out of luck.

Let me say this another way,

'cause I want to give it one more twist.

The family on the left has
has a hidden resource here.

They have another worker,
the added worker effect.

If dad, and that's how it
usually was, loses his job

or has a heart attack and can't
go to work for three months,

the family on the left has
somebody they can send in

to the workforce.

Now she doesn't make as
much money as she does

by the year 2000,

she doesn't have as much education,

she doesn't have as much
on-the-job training,

but, and here's the key,

every dollar she earns is a new dollar.

It's an unbudgeted
dollar that was not part

of what they originally had.

So for example, the family on the left

that collects unemployment insurance,

combined with the additional
income that mom can bring in

for a temporary period of employment,

they got a chance, they'll go down some,

but they got a chance to pull through

and come back up on the other side.

The family on the right,
if something goes wrong,

there's no place to go,

they've already got their
other person not only at work

but already fully budgeted,

they've already given up that income fully

in order to survive.

But the risk of losing your job,

the risk of losing
income didn't stay steady

between the early 1970s and today.

I draw here on Jacob Hacker's work,

some of you may be familiar
with it, "The Great Risk Shift".

What Jacob has done in this has looked at

a family's chance of a 20%
or greater drop in income.

And he starts back in 1970,

Jacob is a good friend and
will stick with the same years

I want to go with, and he goes up to 2003,

and you notice how income volatility

has gone up in this period of time.

So now we've got that family,

not only struggling because
they got to have 104 paychecks,

struggling because the
odds that one of them

will be laid off has
gone up from where it was

a generation ago.

Okay, so that's where they
are on the income side,

in terms of risk.

This is risk this little unit has to bear.

Let's think about health.

Okay, same argument I
could make as before.

They now have double the chance

that someone will be in a car accident,

one of their two workers,

and won't be able to go
to work and therefore

make enough money to
pay a mortgage payment,

but this family now faces additional risks

on the health side as well.

What additional risks do they face?

Well, I'll pop forward to one,

and that is the increased odds

that they won't have health insurance.

Those odds have gone up
over the past 20 years,

but the ones I like to think about,

I keep coming back to this one

because it's my favorite slide,

the ones I like to think about

are that the world of healthcare
has changed in 30 years.

So let me just give you an example.

In 1971, a woman who was healthy

and gave birth to a healthy baby,

ordinary delivery, non-cesarean,

stayed in the hospital for five days

after the day the baby was born,

that's what insurance paid for,

that's what the hospital expected.

You could go home earlier if you wanted to

but you're entitled to
five days in the hospital.

If you had a cesarean, 10,

that you got to stay in 1971.

And you know what the numbers are in 2006?

24 hours, okay?

24 hours, and keep in
mind, in some places,

that's by legislation,

because they were trying
to push them out faster.

How have we made gains
in hospital efficiency

over the past 30 years?

You send home the sick people.

It really works, there is a policy,

we never want to talk about
this in the United States,

it's known in the trade,
in the hospital trade,

is send them home quicker and sicker.

They save money by letting the
family provide nursing care

instead of having the hospital,

so you still have your
surgery done at the hospital,

but it's the family that will
take care of you post-surgery.

And so today we witness the
spectacle of my mother-in-law,

a woman in her 80s where
someone's trying to explain to her

how it is that she can wash a tube

and rinse things out and give injections,

my sister-in-law was just asked to do this

when my brother had some surgery,

we're gonna train the family to take care,

only they're both at work.

And the consequence of this
means that for these families

with everybody in the
workforce, somebody gets sick,

you just take off work,

'cause somebody's gonna
have to take care of them,

somebody's gonna have to
'cause you're not gonna get

this extra period of nursing care.

It's just another way
to give one more push.

How about if a kid gets sick, a child?

I mean something really serious,

grandma falls and breaks a hip.

A generation ago, there
was someone at home

to provide that nursing care,

for that extra eight
weeks that grandma needed

some extra help.

Today, the illness of a family member

has a direct income impact for people

who aren't lucky enough
to have jobs that pay you

even when you're not at work.

So the consequence is we
end up with these families,

the child gets sick,

I read these stories over and
over in my bankruptcy files,

the child gets sick,

mom stays at the hospital with the child

until she loses her job.

There are income effects
now from any illness

anywhere in the family.

So we end up with a family
once again bearing more risk

that someone will get sick,

and we can just keep multiplying this.

What are the odds of spending $10,000

in an emergency room today

compared to spending
$10,000 in an emergency room

a generation ago?

One more that I just have to mention

that we can't quantify
yet but I'm watching it

is that insurance itself has changed

in terms of how much of the medical cost

is actually covered.

We now have floating around in America,

I just, I don't know what else to call it

except faux insurance,

people who think they're insured

until they actually get sick
and need their insurance

and it turns out that, well,

yeah, you have insurance,

I love the Utah policy that our

Secretary of Health Education and Welfare

comes out and says, "I got
everybody in Utah insured,

"except it doesn't cover hospitalization.

(audience laughing)

"And it doesn't cover specialists."

And you call that,

and of course, it doesn't
cover prescription drugs,

and it doesn't cover
supplies and it doesn't,

there's more than it doesn't
cover than it does cover.

So all of this is being
pushed back on the family.

So let me take one more twist on it,

so we've got changes in jobs,
changes in health insurance,

changes to healthcare,

what it cost to do health and care,

and I just want to put
one more tweak into it

and that is to talk
about the special risks

facing families with children.

I've made this my iconic family,

but I want to make two points
about the iconic family here,

the mom, dad and two kids.

This is how it works for
mom, dad and two kids.

Think how it works for
either a mom and two kids

or a dad and two kids.

They are now competing,

I actually met a woman, it
was a wonderful exchange,

I was sitting on an airplane
right after the book came out,

"The Two-Income Trap"
and I had it on my lap

and this woman next to me said,
"Have you read that book?"

(audience laughing)
And I said, "Mm-hmm."

And she said, "I'm a divorced mother",

and she said, "I'm an accountant."

She said, "I make a good income,

"I make above a median income
in the United States today."

She said, "I could make it,
I could support my two kids

"on what I get for child support.

"I could do it if I were only competing

"against other one-income households,

"for the basics, for
housing, for healthcare,

"for all the things we're buying."

But she said, "I'm competing
against two-income households."

And she said, "I just can't do it."

She said, "I can't hang
on, I can't make it."

So that's the first
part I want you to see,

the one-income family
gets the lower income,

still faces high expenses,
still wants the house

and so on and so forth, and
faces all the same risks

with no one to back up and
provide that second income,

but I want to step forward
to say something else

about families with children and that is

this goes back to Hacker's work,

percentage increase in
volatility by family type

from 1970 to 2003.

And notice what Hacker points out here.

For those of you can't read the wording

all the way over to the far side,

green is single without children,

that's how much income volatility,

and look, that's substantial
income volatility

that we've got there, in the high 30s.

Single with children, a little above 40%.

Married without children, you
get about a 70% volatility.

And married with children
pushes up to about 95%

increase in volatility
over the past generation.

Now, are families struggling with this?

Well, let me show you some of my data.

Oh, not my data, government data,

I never know what the
next slide is going to be,

keeps me on my toes.

The next one is to disaggregate

a little bit more about housing,

we talked just a little
bit about it before.

This is one of those charts,

it doesn't fit perfectly
with what I'm talking about

because the years aren't quite right,

this is some government data I found.

Only goes back to 1983,

but notice what it shows, that
increase in housing costs,

what families are paying for mortgages,

not my part in general,

they've done it the other way around,

what they're paying for the house itself,

what the cost of the house is.

We saw a 50% increase among
the families with no children,

inflation adjusted and what housing costs,

but you notice among
families with children,

it's 100% increase,

a full 100% increase in
inflation adjusted dollars

for what a home costs for
families with children.

Now we're gonna save plenty
of time here for Q and A

because I think that's more fun

than having to listen to a lecture,

but I'll tell you at least
how I read this chart.

Families are going to schools.

People without children
don't have to buy schools,

and so they buy from
a wider pool of homes,

they can look at a lot of homes
in a lot of neighborhoods.

Families with children are
buying what they believe

is a shrinking resource, that is,

places where you can have
decent public schools

and send your children to public schools.

And in fact, we can triangulate
these data in other ways,

so that you'll love this.

I wonder, I was gonna it's
gonna say it would happen

only outside Boston,

but I bet it also
happens outside Berkeley,

we just have the data outside Boston,

a five point increase in
third grade reading scores

between two side-by-side municipalities

in the Boston suburbs that are
otherwise matched for access

to public transportation
and size of houses,

they've measured for everything,

sidewalks, crime rates,
racial composition,

everything you want to look at,

five points in third grade reading scores

translates into tens of thousands
of dollars of difference

in housing prices.

Parents are buying schools.

There was a great one out of San Diego,

study out of San Diego,

where they were having
parents do preferences

on where they buy,

parents would rather
live near a toxic dump

than live in a place where they thought

the schools were underperforming,

where they thought their
children would not have

as good a chance in school,
and I think that's what we're,

that's a large part of
what we're seeing here.

So parents say, "I've gotta
have those good schools,

"I gotta get out there, I gotta
push, I gotta get forward."

They're spending more
as we've talked about,

so what happens to them
when they push this hard?

Well, there comes in
just a little touch of

what I want to talk about
with the safety net.

What's happened to the American safety net

for these families?

Well, the first part is
the personal safety net,

the part you build yourself.

We've already looked at the data on that.

Less savings, more debt,

more people without health insurance

than we've ever had before.

And by the way, I should
make a point on this,

more people without health insurance,

it's really been important to see here

how much lack of health
insurance in the 1970s,

the typical modal uninsured person

was an unmarried male, no
children, 23 years old.

Today, modal is a 35
year old married person

with two children, has
no health insurance,

this is the largest group
when you start looking

at the groups who have
no health insurance.

In 2001,

1.4 million people lost
their health insurance.

Of those, 800,000 earned
more than $75,000 a year,

that is moved from the
insured to the uninsured ranks

that we have data for.

So what we're starting to see is

people who have no health insurance,

the people who've lost that
part of their safety net

are increasingly among
in the middle class.

We could pick some
others that shift between

the defined benefit plan and
the defined contribution plan,

for those of you who who keep
up with the pension lingo.

What it basically means is the shift

so that you put in money,
and you take the risk

of how long you'll live, that is,

whether or not you'll outlive your money

versus the defined benefit plan which is

you get a certain amount until you die.

We've moved very much to
the former from the latter,

so you have a real chance to outlive.

Those are on the personal side.

If you take a look on the public side,

we've had the same kind of
erosion of the safety net,

and that is unemployment benefits

no longer is a proportion of income,

are nearly as high as
they were 30 years ago,

so they're not providing
the same kind of safety.

I would make a pitch that what
we pay for public education

to launch our children
into the middle class

has eroded sharply.

And I'll make the pitch this way,

I'm giving you lots of different pieces

that we can talk about here,
but here's the way it goes.

In 1970, it took 12
years to educate a child

to go forward into the middle class.

How do I know that?

I know that from looking
at Gallup polling data

about what parents
thought it took to make it

in the middle class.

And the answer was a high school diploma,

a good work ethic,

there were parents who
believed in college,

but they believed that you could make it

in the middle class with
a high school diploma

and a willingness to work hard.

Roll that forward to the year 2002,

here's a great number for you,

twice as many people in America by 2002

believe that the moon
shot landing was faked,

and they filmed in Burbank, California,

than believe you can make
it into the middle class

in America without a college diploma.

Americans who differ on
everything have adopted wholesale

in a single generation that
there is a single ticket

to the middle class, and
that is a college diploma.

Now, all by itself, would
I be opposed to this?

Are you kidding?

I'm in the education biz,
I think this is fabulous.

Everyone should go to college,

my dog should get a college education,

I'm for college educations,
I think that's terrific.

The difference is when you
look at middle class families,

if you needed 12 years back
in 1970, taxpayer paid for it.

You got it all for free.

All you had to do was show
up, live there and show up.

By the year 2000, if you
need a college diploma,

you've gotta pay for it
yourself, by and short.

Berkeley, other state supported schools,

I guess that means you guys
are not paying any tuition?

Room, board, books, right?

It's not very much,

I guess you borrowed maybe a dollar or two

in order to do this,

but notice what that means,

it means the launch, what
the parents have to do

to get this next generation in
the middle class has shifted

from being something
that everybody pays for,

the taxpayer pays for,

to something only the families
with children are paying for.

I'll make the same point, by the way,

on the other end of
the education spectrum.

In 1970, I actually went
back and looked at this data,

it surprised me, almost no one

sent their children to preschool.

And in fact, if you go
back and read the articles,

you read Dr. Spock from
the 1970s editions,

1960s, 1970s editions,

they can play with the
neighborhood children,

they'll be fine, and only a tiny fraction

of American children are in preschool.

Today, it's totally flipped.

Basically through all the education folks,

early childhood specialists,
they are completely in for

children under two years have preschool.

And once again, who pays for
the two years of preschool?

It's paid for by the family.

So one way you could look at this

is in the space of a generation,

we went from 12 years being
enough to push that kid forward

to adding two more years, that's 14,

and four more years, that's
18 years of education

in order to push those kids forward,

only the difference now
is the family privately

pays for a third of the
education themselves.

And we could have some great fun

with what the education costs.

Recently, it's been about three years ago,

Chicago, city of Chicago
publicly supported

preschool programs, there was
already some tax dollars in it

but the parents had to pay tuition.

I always loved this one,
the tuition was larger

than the tuition at the
University of Illinois.

That's what the parents were
supposed to come up with

to put their three year
old into the system

that was gonna get them the education

that was gonna get them
ultimately launched

into the middle class.

So in that sense, we shrink
part of what's available

to support families with children

so that they can move forward,

so they can launch this next generation.

So how have families responded to this?

This is where I said I'll come to

at least a little bit of my data here.

Let me tell you about bankruptcy.

What's happened with bankruptcy?

What this one's about,

I'll tell you what the
bright colors on here,

this is about bankruptcy
filing rates per thousand

in the population.

And this is in 200 and 2001,

I love this data, it's
got 2003 on these data.

Married couples are the
far one in the light blue,

about 7.4 married couples
per 1,000 married couples,

so each is being within their own group,

filed for bankruptcy.

Unmarried men, about 6.3 per 1,000.

Unmarried women, about 7.2 per 1,000.

But the trick here for
all three of these groups

is they are all childless groups.

So I've got them, all you've
got them in their graphics,

they're couples, men,
men alone, women alone,

and none of them have children.

These are the bankruptcy filing
rates in the United States

in the early 2000s.

Now let's add in children.

Turquoise, again, is married couples,

only this time with children.

It's jumped, the filing rate
has jumped to 15 per 1,000,

and among women heads of household,

no husband in the household,

it has jumped to 23 per 1,000.

You notice by the way,
unmarried men with children

fall out statistically
because there aren't enough

to be able to say something
that's statistically valid

about what's going on here.

So what this one tells me is
that families with children

are under enormous financial stress.

I watch them, I study them
from the bankruptcy end

of the spectrum which
is where they end up,

and let me tell you a little bit about

why they file for bankruptcy.

90% of those families file
for one of three reasons;

Job loss, medical problem in the family,

sometimes the wage
earner, sometimes a child,

or family breakup, either
a death in the family

or a divorce in the family.

In fact, nearly half the families

have at least two of those three,

and about 20% have been
hit by three out of three.

That's how it is that
they end up in bankruptcy.

Now let me give you an idea
of what these numbers mean

so I can put it in a little
bit different context.

These families that are
filing for bankruptcy,

families with children,
more children live in homes

that will file for bankruptcy this year

than live in homes that
will file for divorce.

That is, there are more
children in America,

and this has been true by
the way since the late 1990s,

every year, more children
are going through

their parents' bankruptcy
than are going through

their parents' divorce.

So let me say that to you a different way.

You know anybody who
got divorced any time,

say in the last six or seven years,

you know some children who live in homes

where mom and dad have split up,

then you, statistically
speaking, know more,

random cross-sections of America,

you know more who went bankrupt.

Why do you think you don't
know more that went bankrupt?

And that's because you can't hide divorce,

but you can sure hide bankruptcy.

And that's what people have done.

There's an enormous stigma

attached to filing for bankruptcy.

When we interviewed the families

who had filed for
bankruptcy, quite frankly,

I was shameless about
this, we paid them $50

if they would take extensive
telephone surveys for us

about bankruptcy, and so we
got very high response rates,

but one of the key things
we learned early on

is that people would
say, "Don't use the word,

"partly because I can't bear to hear it,

"and partly because I'm
afraid the child will pick up

"an extension phone, or
someone will walk into the room

"and hear me say it, and we
don't want anyone to know."

About 85% of the families that
were filing for bankruptcy

were hiding it from their own
parents, from their siblings,

from their best friends,
and in some cases,

from their own children.

Many of them said they had other stories.

Yeah, they were giving up the house,

and moving in with Bob's mom

because Bob's mom's health was not good.

Yeah, that's a story you can tell.

"We're moving across country

"because there are better
job opportunities."

Yeah, they're moving across country

hoping they can get a job,

but going to live in rather
reduced circumstances.

So those are the families who
are filing for bankruptcy,

in part, the reflection of what's happened

to this safety net.

So I just want to wrap this up

and open it up for some
questions and answers

because I just want to make
three or four big points

at the end here about about
what we're talking about

with these families in financial trouble.

First I want to make is
a point about the poor.

I've hammered on the middle
class over and over and over,

and I've done it because for
everybody who cares about

poor families in America,

you should be riveted on these data.

Middle class families under
enormous economic stress

have fewer resources to give

when we talk about how it is

that we're going to help the poor.

More importantly, they frankly
have less appetite to give,

when they see themselves
as already stretched,

when they see themselves
facing foreclosure notices

and bill collectors, they back off.

And more critically, a middle
class that looks like this,

a middle class where people are
falling out and into poverty

is a middle class that has
less room to bring the poor up

and provide them the opportunities
to join the middle class.

I think people who talk
about the intractability

of poverty now are absolutely right,

there are social issues
far beyond my expertise,

but this is an element of it
that no one's talking about.

There's no place for the poor to go,

and not much help coming
from the middle class today

compared with even a generation ago.

The second point I want to make about

what these data speak to me about

is that I fear we're moving
from a three class society

to a two class society.

America has always been
sort of one of those

perfect distributions,
some poor, some rich,

and a big, big solid middle class

stuck right there in the middle.

Americans identify with the middle class,

it affects our democracy,

it's part of what gives us
our political stability,

it's what affects our economy
and drives our economy,

it affects our self-identity,

it affects who we are in this world,

but I fear that what's happening

and what these data are about

is that we actually are gonna
see a larger upper class.

We're seeing, not just the rich
rich, but the sort of rich,

the ones who have the same
jobs, bringing in two incomes,

who don't get sick, who don't lose a job,

who in that income volatility,

and the things that go
wrong in the medical world,

who don't divorce, who don't
have a death in the family,

who don't hit any of life's bumps,

they stay with the upper group.

They put away some savings,

they don't get deep in debt, they do okay,

and then the rest is just
one long trail of underclass

that stays on a constant debt treadmill.

Sometimes it's a little more,

sometimes it's a little
less, but never out of debt,

never any real economic security.

I could change my metaphors,

people who are just costantly living

on the edge of a clif,

some falling over, some
scratching back up a little,

but never with the kind of security

that for the first three
quarters of a century,

were associated with being middle class.

I worry about what that means.

I worry that the middle class,

which used to mean solid and boring

and not worth studying, only
worth making fun of, you know,

"My parents were hopelessly
middle class", sort of remarks,

that that's kept us from seeing a problem

in the middle class that threatens

not just these families with
children that I've identified,

but really threatens the
fabric of our country.

We have a middle class today
that is newly weakened,

and I think what this means
is that it's time to realign

both our academic and our
political interests and alliances

to talk more about what's
happening to these families.

So with that, I'm gonna quit,

and take as many questions as people have.

(audience applauding)

(dramatic music)