Peeling Stickers Off the Rubik's Cube

Perceptions of Socioeconomic Instability

This is a paper I wrote for my Social Problems class.

Introduction

     "Eye-opening" would probably be the first word I would use to describe The Two Income Trap. I've put considerable effort into trying to understand what could be considered the darker side of the free market system, and even so, it seemed like every few pages – especially in chapter 6, "The Cement Life Raft" - had a revelation about much I had underestimated how bad things have gotten. One thing I've suspected for a long time is that part of the reason middle-class families are struggling is because of our collective willingness to give profit motive the final word over so many aspects of our lives. The Two Income Trap seemed to confirm that suspicion, although my hope is that this isn't a case of me seeing what I want to see from the book. 

     The overarching theme of the book seemed to be that the reason middle-class families are having such a hard time providing for themselves and their children is that even though these families are making more significantly more money than their predecessors by having two parents in the workforce, much more of that money goes into the pockets of businessmen who now see that family's extra income as an excuse to raise prices and make greater profit. Warren and Tyagi describe this with the term "bidding war". Another theme of the book is how badly we as a society have stigmatized and stereotyped those who struggle with things like debt, because it allows us to remove ourselves from the pain that these people are feeling. If we assume that people living with debt are simply lazy and irresponsible, it keeps us from having to consider the possibility that we too might have to deal with bankruptcy. This is compounded by the fact that it takes much less effort to listen to pompous and egocentric pundits proclaim that "we" (the supposedly financially responsible) are superior to "them" (the supposedly lazy and foolish people who are struggling financially), than it is to take the time to understand who these people are and what situations they're facing, as the authors have. 

     While I was reading this book, I took notes at some of the more poignant statements and passages. It seems like the most straightforward way to write about the book is to go back over those notes on a chapter-by-chapter basis. Since the first chapter is basically an introduction and the last chapter simply covers common-sense solutions, I'll begin with chapter 2 and end with chapter 6.

Chapter 2: The Over-Consumption Myth

     This is the chapter that first explains society's stigma and stereotyping of people in debt. The Over-Consumption Myth states that the primary reason middle-class families are either in massive amounts of debt or completely bankrupt is that they've done it to themselves by foolishly spending huge amounts of money on expensive things they don't need: high-end homes, gadgets and gizmos, expensive clothes, dinner at fancy restaurants. The book points out that while this spending has a grain of truth to it, it's far from being the main reason behind the financial problems. The problems with the Over-Consumption Myth are picked apart one at a time: the average home, while larger than its European counterpart, is hardly an overindulgent mansion; gadgets like home appliances and home entertainment only account for a relatively small amount of a family's budget; the average family spends comparatively less on clothing than the families of past generations; and as it's explained on page 18, the today's average family actually spends 22% less on food than past generations did. 

     The real reason families are in over their heads, as shown in the inflation-adjusted Figure 2.1 on page 51:



…is that fixed costs (such as mortgage, child care, health insurance, car, and taxes) have more than doubled since the 1970s. The modern family actually has almost $800 less in annual discretionary income. All of those fixed costs, with the exception of taxes, are under control of market forces as opposed to the government. The central theme of the Two Income Trap is that since most families now have two parents working instead of just the father, those market forces have seized the opportunity to increase the prices of things like cars, health insurance, etc., beyond what inflation would account for, in order to make higher profits.  Housing is the main example used by the authors: because today's families have more money than their 1970s counterparts, a "bidding war" for more desirable neighborhoods has ensued, with banking institutions coming out the victor. Because families are competing for houses in safe districts near quality schools, those banking institutions feel free to jack up the costs of those houses. Health insurance, child care, and car expenses have grown more expensive in a similar manner – because of an increase in competition with regard to consumption without an equivalent competition in service, the laws of supply and demand allow businesses to increase charges without increasing quality.

     The authors propose a number of solutions that could help these middle-class families. The solution to housing and schools, starting on page 34, consists of three parts: 1) allowing the parents to send their children to any school they want within their region of the city or county; 2) an overhauled voucher system that means tax dollars follow the children to the schools their parents choose; 3) expanding school transportation and busing, so that families' choices aren't limited by location. The only criticism of this plan I can think of is that if parents always choose quality schools for their children, and tax dollars follow the children to those schools, how will poorly performing schools get the funding they need to increase the quality of education they can provide?  On page 39, the authors suggest that the problem of expensive preschools can be solved by expanding public school to include classes for children as young as three. This also sounds like an excellent idea, but where I disagree with the authors is when they reject the idea of public day care, on page 40. They reject the idea of day care subsidies because it would be giving money to families, which would increase the problems of a day care "bidding war". To me, this seems like another moral failure of the market. But aside from subsidies, the authors also reject a day care funded in the same way as public schools on the basis that those day cares would unfairly benefit families who don't have a stay-at-home mother. To me, this "unfairness" argument seems somewhat trivial, compared to all the benefits that would come with a public day care program. It would be providing assistance to only families with two working parents, but that's not the same as taking opportunities away from families with a stay-at-home mother. Not only that, an inexpensive public day care system would put pressure on private day care systems to keep prices down.

     On page 43, the authors explain that most colleges actually lose money on athletics. This came as a surprise to me – I had always viewed sports in universities as something of an unnecessary distraction, but it was one that I was okay with because I had always thought athletics were a revenue generator, not something that took funding away from their general budgets. But the point in this section is that even colleges feel free to jack up tuition rates for the sake of collegiate prestige (even more than for the sake of normally increasing administrative costs). Their proposed solution is a mandatory tuition freeze placed on all state universities, which would encourage those universities to reign in excessive unnecessary spending on things like athletics, as well as forcing them to refocus on providing for the most capable students, rather than the wealthiest (who are immune to tuition increases). This would help greatly with parents and students who are going into massive levels of debt to afford a college degree.

Chapter 3: Mom: The All-Purpose Safety Net

     This chapter explains some of the advantages of having a stay-at-home mother that were lost when women decided to go into the workforce. Most of these are fairly obvious, but the chapter also shows how families no longer have an internal safety net to turn to if something goes wrong. If a parent loses his or her job, they turn to whatever is in savings to make ends meet until another job is found. If they have no savings, the family withdraws from retirement accounts (which comes with huge penalties) or simply goes deeper into debt with loans and credit cards. The solution proposed on page 69 is that the government should provide tax breaks for all savings, and that family savings should be exempt from taxes. The main criticism that comes to mind is one that the authors also point out: there would be huge tax revenues lost from wealthy people who decide to save money just for the tax benefit of it. They suggest increasing other taxes on the wealthy to compensate, but it seems to me that a better solution would be to define a level of income above which these savings benefits begin to taper off, eventually diminishing completely for the very wealthy. 

     An excellent summary of the problems faced by modern families is on page 70: "Today's parents are working harder than ever – far harder than their single-income counterparts of a generation ago – holding down full-time paying jobs and still covering all of their obligations at home. Yet, paradoxically, […] they are more vulnerable to financial disaster. […] They are caught: can't afford to work, can't afford to quit, and can't survive if something goes wrong." And yet so many conservative pundits and politicians dismiss these families as simply lazy and quick to make foolish purchases.

Chapter 4: The Myth of the Immoral Debtor

     This chapter explains the myth that people in debt or bankrupt today are simply less morally inclined and trustworthy than their predecessors of generations past.  It goes back to the theme that society in general likes to stereotype those who struggle financially as "inferior", or not worthy of being given assistance. This attitude is typically propagated by sneering fiscal conservatives, who are often completely unaware of the difficulties faced by families forced to declare bankruptcy, and who blindly jump to the conclusion that bankruptcy rates have increased because people unethically choose bankruptcy over paying back debts as they should. The reality of the situation is that not only does bankruptcy function as a last resort in most cases, as it's intended to, but there are millions of struggling families in America who would benefit from bankruptcy and yet don't declare it because of the stigma surrounding it. Aside from that, as the pie chart on page 81 shows…



…87% of bankruptcy is the result of at least one of three causes: job loss, medical problems, or divorce or separation. None of these causes have anything to do with "immoral" choices made by the family. On page 84 it's noted that in the past 20 years, the number of families declaring bankruptcy because of medical bills has increased 2000%. Not only that, but hospitals are releasing patients "quicker and sicker" – just days before reading this chapter, a friend of mine told me her grandmother, who has a ruptured disc, one failing kidney, and requires constant medical supervision, was about to be kicked out of the hospital she was staying at, and turned over to the family who is expected to take care of her. The family consists of the people immediately surrounding my friend's father, who lost his job a few months ago. Quality of care is declining, and yet prices of medical care are skyrocketing. To me, this indicates that the immorality is on the side of the market, not on the side of the people trying to pay the bills. This constitutes a massive failure of illiberal economic policy, and demonstrates a hole in supply-and-demand theory large enough to drive a truck through. The ignorance, stereotypes, and absurd justifications that allow this system to exist are absolutely asinine. 

     On page 89, the authors drive home the point that those who have not (yet) faced financial ruin constantly stereotype those who have and who are facing it: "The Myth of the Immoral Debtor nourishes the unspoken idea that families who have lost their financial footing are a tainted group, some "other" who are different from the rest of us. If we can believe that those in serious trouble are morally suspect, then it is easier to glance away from the harsh dangers of everyday life. The myth supports a comforting illusion that the rest of us are safely distanced from financial collapse, making it possible to avoid that terrifying moment of connection with someone caught in a financial disaster, that frightening there-but-for-the-grace-of-God-go-I realization."

     On page 93, the authors suggest that one way to help would be closing holes in the Social Security Disability Insurance program. This is an excellent idea, but the authors also suggest that families don't have to sit back and wait for the government to act, that they can simply purchases insurance in the private market on their own. The glaring problem with this statement is that they're ignoring the fact that families already have budgets that lack breathing room. This makes no sense, because if so much of the book is dedicated toward pointing out how families can barely afford the monthly expenses they already have, how can they be expected to tack on a few thousand more for extra insurance from the market? On page 94, they point out that fewer than 10% of the nation's elderly have purchased private insurance to protect themselves from long-term health care expenses. But how many more of the nation's elderly can actually afford such policies, if they're already relying on younger family members for care?

Chapter 5: Going It Alone in a Two-Income World

     Like the name implies, this chapter is about the difficulties faced by single parents in a world that expects families to have two incomes by default. It explains in detail how a divorce can leave a family financially ruined, and how at that point, creditors and banking institutions will start circling the distraught, newly split-up family like sharks smelling blood in the water. A large portion of the chapter is devoted to debunking the myth that the problems of single mothers can be solved by simply forcing the father to pay more – a deadbeat dad is one thing, but a father who is on the verge of poverty himself is another. 

     An excellent summary of the chapter is on page 121: "The predicament of divorced mothers has worsened not because divorce itself is any harder, but because couples today are in worse financial shape before they split up." The solutions the authors propose mirror those of getting the two-income family into better financial shape: encouraging personal savings, and discouraging debt. The latter certainly makes sense – avoid giving the credit and banking institutions the chance to sink their fangs into you in the first place. But as for the former, I would make the same argument that can be made about that solution for dual-income families, but to an even greater extent: if such huge a proportion of a single parent's income goes toward keeping a roof over the family's head and food on the table, one wonders just how much money they can be expected to save.

     The second solution proposed by the authors is free (or subsidized) child care for the children of single parents. This raised a couple questions. First, the main reason the authors opposed free (taxpayer-funded) child care for the general public is that it gave a disadvantage to families that already had a stay-at-home mom. But I know several two-parent families who are struggling financially in much the same way that these single-parent families are – so wouldn't their solution be putting those families at a similar disadvantage? Although I should point out, it seems to me like the "disadvantages" that free child care would bring are negligible. Those families with stay-at-home mothers would simply be given another option for how their children could be taken care of, should the mother have to go out and find a temporary job (which was previously pointed out as an advantage of having a stay-at-home mom).

Chapter 6: The Cement Life Raft

     This was, for me, by far the single most jaw-dropping chapter of the book. The following passage is the ultimate example of how conservative economic theory (classical liberalism), in which the market is given as much leeway as possible, is one of the biggest – if not the biggest reason America has been in such a poor and worsening condition since the election of Ronald Reagan:

In 1990, I [Elizabeth] was hired as a one-day consultant by Citibank to address a gathering of some forty senior lending executives. The task: use my research to suggest policies that would help Citibank cut its losses from cardholders in financial trouble. I arrived at Citibank's New York headquarters with dozens of graphs and charts tucked in my file folders. I was ushered into a large, brightly lit conference room where each chair was filled by someone outfitted in a starched shirt, silk tie, and dark suit. The executives stayed with me all day, eating lunch at the conference tables as we continued our discussions about the effects of unemployment on loan defaults and the rising number of bankruptcies among two-earner families. As the afternoon came to a close, I summarized my recommendations. The short version could be boiled down to a single, not very startling, idea: stop lending money to families that are already in obvious financial trouble. This would have been quite easy to implement. Citibank had reams of data on most of its borrowers, particularly those who had black marks on their credit reports. I suggested that the policy could be put in place within a few short months, potentially cutting Citibank's bankruptcy-related losses by as much as 50 percent.

     There were interested murmurs around the room, and several hands eagerly shot up. But before I could call on anyone, one slightly older man spoke up. He had been silent throughout the long day, leaning back in his chair and giving me a faintly bemused smile. "Professor Warren," he began. The room hushed immediately, and I suddenly realized that I had been oblivious to the corporate pecking order; this was the guy who outranked everyone else in the room. "We appreciate your presentation. We really do. But we have no interest in cutting back on our lending to these people. They are the ones who provide most of our profits." With that, he got up, and the meeting was over. I was ushered out, and I never heard from Citibank again.

     I literally had to fight the urge to throw the book through my bedroom window. As if that weren't immoral and infuriating enough, this book was written in 2003: 5 years later, Citibank's asinine lending practices were one of the major reasons of the financial meltdown of 2008, which resulted in millions upon millions of lost jobs. No wonder Bill Maher refers to them as "Shittybank". 

     I've been telling financially-troubled friends and family for years that they need to cut up their credit cards, pay off remaining balances, and sever all ties to institutions headed by greedy immoral bastards like this. My advice is rarely listened to, of course – I'm just 23, what could I possibly know about personal finance? 

     Like I said on the first page, I've made considerable effort to understand the dark side of the free market, and this passage is quite literally the ultimate illustration of that. My philosophy on personal finance is that corporate capitalists – specifically, the kind mentioned in the above passage as opposed to small-business entrepreneurs – will try to screw you over as hard and as fast as possible, as often as possible, in order to maximize profits. I don't trust them as far as I can throw them, and this chapter seemed to be one massive justification of that stance.

     On page 128, the authors explain that deregulation of the lending industry was the biggest cause of the mess that America is in. The reason should be obvious at this point: the industry lacks the ethical backbone to regulate itself. Even Alan Greenspan admitted to that (Andrews). The lending industry was deregulated, and as a result of that, we've seen some of the least ethical lending practices in American history. The problem is compounded when people turn to the Myth of the Immoral Debtor, instead of placing the blame where it truly belongs: the lending institutions themselves, and the free-market fundamentalists who try to justify their unethical actions. An example of these unethical practices and the effect they're having on American families is on page 130: credit card debt has increased 6000% from 1968 to 2000 – likely even more, now in 2010. The authors explain how the debt isn't from irresponsible luxury purchases; it comes primarily from people trying to scrape by after being faced with a financial catastrophe, such as divorce or job loss. On page 131, they point out that almost one-third of bankruptcy filers, over 400,000 families, owed an entire year's salary on their credit cards. No doubt, a portion of this credit card debt is due to irresponsible spending, but the authors' research shows that the majority of it is due to what can be summed up as newly-deregulated credit institutions salivating at the thought of easy prey. As the authors state on page 132, "only the willfully ignorant refuse to acknowledge the real reasons behind all that debt."

     Beginning on page 133 and continuing through the end of the chapter, the authors explore the idea that the lending industry needs to be re-regulated. To which everyone with a functional brain and a conscience replies, "FREAKING DUH." As if the examples mentioned above weren't enough to justify that, on page 136 the authors mention a common lending industry scheme called "Loan to Own": lenders have found that foreclosing on a home can be more profitable than that collecting a mortgage payment every month, because the property can be resold for more than the outstanding loan amount. So the banks deliberately issue mortgages to families which can't afford them, with the intention of foreclosing on the family a few months or years into repayment. As far as I'm concerned, any lender caught implementing this practice should be locked in jail and have the key melted.

     On page 143, the authors explain the stance of Arthur C. Martinez, former Sears CEO, with regard to the brutal and unethical policies Sears holds toward people they give credit to. His response, when questioned about Sears threatening to seize control of all items purchased from Sears by a family that was having trouble making payments because of asinine interest rates and late fees, was "We have an old-fashioned view. People should pay for what they take." As the authors point out, there is nothing old-fashioned about what these people are given and how it's given to them. Stores that offer credit like Sears now make more profit from interest and late fees than they do from selling the merchandise.

     On page 148, the authors point out, "Since 1970, banking profits (inflation-adjusted) have more than tripled, growing by $50 billion. Those profits weren't the rewards for important innovation. Lenders didn't invent a faster computer, design a better car, or make a great new movie that everyone wanted to see. (Indeed, many would argue that the quality of banking service actually declined during this period.) No, they sold pretty much the same thing they always had – debt. The difference was that they sold more of it, and they charged higher prices." Capitalism has evolved from one of the most stable, and relatively fair, economic systems in human history into an insatiable monster with no qualms about destroying the average middle-class family without hesitation or mercy. The free-market fundamentalists who defend this system incessantly argue that those who are rich arrived at that wealth by hard work and sacrifice. That's no doubt true, in many cases. But in many, many others, as this passage and this chapter point out, such wealth is often the result of cooking up schemes to sucker customers in and then screw them harder and faster than ever before.




References

Warren, Elizabeth, and Amelia Warren Tyagi. The Two-Income Trap: Why Middle-Class Mothers & Fathers Are Going Broke. New York: Basic Books, 2003.

Andrews, Edmund L. "Greenspan Concedes Error on Regulation." The New York Times. 23 Oct. 2008 <http://www.nytimes.com/2008/10/24/business/economy/24panel.html>

In my Comparative Politics course, we were assigned to give a presentation on a current-events news item that included two articles which analyzed the event. I chose the topic of healthcare reform in America, and this is the written version of the presentation I gave. Between the speech and the Powerpoint, the presentation itself took about 10-15 minutes; with the lively and constructive (!) Q&A (read: debate) that took place afterward, the total time stretched into about 35 minutes. It was very well-received:

Comparing American Healthcare
“He that oppresseth the poor to increase his riches, and he that giveth to the rich, shall surely come to poverty.”

The state of the health care debate as it exists now, and how it’s been for the past several weeks, is pathetic. This video goes a long way in showing just how pathetic it’s become: http://www.youtube.com/watch?v=ht_W5_Ogh0U (“Dana Gould reports on health care protests and Remote Area Medical”).

 
These are Americans, waiting hours and hours in line for a free medical camp because either they can’t afford health insurance or the insurance they do have is grossly inadequate.

As has been mentioned in class, according to the World Health Organization, America, the richest nation in the world, ranks 37th in terms of health care system performance. The study was done in 2000. We spend more on health care than any other nation in the world, and yet we’re 37th in quality. The fact of the matter is that unless you’re already well off or have a generous employer, health care in America sucks. The question is, why?

In answering that question, and with respect to the fact that this is a Comparative Politics course, it makes sense to compare America to the 36 countries ahead of us on the list. What do they have in common, and what can we learn from their successes and failures? This constitutes a “large-n” study.

When you look at the health care systems of those 36 countries, one of the first things you find is that every single one of them either has a fully socialized health care system, or a free market system with government-imposed restraints, such as insurance companies having to accept everyone and not being allowed drop patients who suddenly need care.

The first article I want to point out goes into detail about five of the top myths about health care in other countries: http://www.washingtonpost.com/wp-dyn/content/article/2009/08/21/AR2009082101778.html?referrer=emailarticle (“5 Myths About Health Care Around the World”). It’s from The Washington Post (hardly a bastion of hardcore socialist thought). 

Myth 1: It’s all socialized medicine.
Germany, the Netherlands, Japan, and Switzerland (to name a few) all provide universal coverage using private doctors, hospitals, and insurance plans.

Myth 2: Patients must deal with limited choices and/or long lines.
In many countries, such as Germany and Switzerland, patients can choose any insurance plan they want. The restraints aren’t on the people, the restraints are on how insurance companies can treat the people. In other countries, such as France and Japan, patients don’t get to choose their insurance provider, but they do get to choose any doctor and any hospital they want. Many nations, such as Germany, Austria, and even Britain (with full-blown socialized medicine) outperform the US on waiting times for appointments and surgeries. In Japan, waiting times are so short that appointments aren’t even necessary: patients can see their doctors the same day they discover a problem.

Myth 3: Foreign health care systems are inefficient, bloated bureaucracies.
American private-sector insurance is less efficient and more bureaucratic than they payment systems of all other industrialized nations. US health insurance companies have the highest administrative costs in the world (20%). In Canada, it’s 6%; in France, it’s 4%; in Taiwan it’s 1.5%. In the year Taiwan’s costs went to 2%, opposition parties rebuked the government for wasting money.

Myth 4: Cost controls stifle innovation.
In fact, the opposite is often true. Because of the pressure of government cost-controls, Japanese researchers found a way to perform an MRI at a cost of $98(US). The exact same scan would cost $1500 in America, and the Japanese labs still make a profit.

Myth 5: Health care is rationed.
In foreign countries, health insurance companies are required to accept all applicants, and can’t cancel you as long as you pay your premiums. In America, patients are routinely rejected by insurance companies because of preexisting conditions, and even if a patient is insured, private insurance companies are often legally able to rescind coverage almost immediately.

The second article goes into more depth about the ideas that are currently floating around with regard to progressive reforms to the American health care system. It’s a video, as opposed to a written article, but compared to other articles it does the best job of clearly laying out what the current proposals are. The video is from CBS News: http://www.cbsnews.com/video/watch/?id=5245212n (“What’s In the Health Care Bill?”).

The following provisions are in almost all versions of current health care legislation being considered:

1) All Americans must be covered. When the uninsured have a medical issue, they wait until it becomes and emergency and use the emergency room. This drives costs up dramatically.
2) No American can be denied private insurance because of a preexisting condition.
3) No one will lose their coverage if they lose their job.
4) No one can be dropped from coverage if they develop an illness or other medical problem.
5) All but the smallest of employers will be required to provide insurance.
6) People uninsured by their employer would receive government subsidies that would allow them to choose their own private insurer.

Other notes:
1) The existence of government-run “death panels” is a lie. Nothing even close to resembling this idea is in any version of the bills. According to a professor of health policy at University of North Carolina,  “You would have a greater chance of being killed by a Death Star in one of the Star Wars movies than you would being killed by a government-run ‘death panel’”.
2) All plans are estimated to cost between $700 billion and $1.03 trillion over the next ten years. (Americans currently spend $2.5 trillion each year on health care).
3) Many (if not all) of the bills specifically state that federal money cannot be used to provide abortions.
4) The biggest fight is over a government-provided “public option” for insurance. People oppose this on the idea that private industry cannot fairly compete with government, or that government-run programs are bureaucratic and inferior. Yet we’re all attending OSU, a “public option” for higher education, and private universities are doing just fine. And if the private sector is always superior to government-sponsored programs, why is no one arguing that the free market should run fire departments?

    
Over-reliance on the free market makes American health care expensive and cruel.

In other words, all of the bills under consideration address some of the key aspects that make American health care worse than the 36 other countries ahead of us in the World Health Organization’s study. By comparing America’s health care system to those countries, we’re able to craft better public policy and increase our own quality of care. That’s a tangible culmination of almost every single topic covered in the first three weeks of this class. Despite the rhetoric of the medical-industrial complex and vested anti-reform political interests, the idea of looking at other political systems in order to improve our own works. Any questions?