(light music) – Welcome to a Conversation with History. I’m Harry Kreisler of the Institute of International Studies. Our guest today is Elizabeth Warren who is Leo Gottlieb Professor
of Law at Harvard University and the 2007 Jefferson lecturer
on the Berkeley campus. In addition to her legal publications she has written two books, The Two-Income Trap and All Your Worth. Both co-authored by Amelia Warren Tyagi and I will show one of those books now. Professor Warren, welcome to Berkeley. – Thank you, its a pleasure to be here. – Where were you born and raised? – Born and raised in Oklahoma. – And looking back how do
you think your parents shaped your thinking about the world? – Ah, well my parents
were from Depression era, dust bowl Oklahoma and that
shapes your life growing up. I was the last of four children. I have three much older brothers. And by the time I came
along I was really kind of the second family for them. They hadn’t recovered from the Depression and I guess in many ways the never did. They were, they talked about it. Those were the stories that
permeated my childhood. What it was like to have
seven years of drought. What it was like when
nobody had any money. What it was like when
all your neighbors left to go to California or
someplace where they thought there might be jobs. My parents hung on, they stayed. My father worked a
series of different jobs. He was a maintenance man
in an apartment house was his last job. But they always saw themselves
as middle class people. They saw themselves as people who, for them the distinction
was they used good English. And they didn’t say ain’t. And those were important indicia of middle classness to my folks. And they believed in
education and were very proud of this little daughter they had. – And around the dinner
table was there discussion of politics, of law, or did
that all come to you later? – Oh no, not around the dinner table. Mostly around the dinner
table it was discussion of cars, or rodeos, and
dogs and cows and horses and a little discussion of worry
about others in the family. There was always a big sense in my family of we all kind of tried
to look out for each other but there was nobody in
the family who really had much of anything. – A theme that you pursue in these books that we’re gonna talk about is what’s happening to the family. I, from what you’re
saying now I get the sense that the family was very important as a last resort for
survival in the context of these very harsh times. – Yeah, I think that’s exactly right. That people who didn’t have family or people who broke from their family, they were the true poor. They were the ones with nothing. But so long as you had family you had people who would make sure that you got fed one way or another. You know, family was
about canning peaches. And canning peaches was about making sure that there’d at least be
something come next November when it was cold outside and
there were no crops coming in. Family is the heart of what it’s about. – Did you have any
teachers as a young person before you went off to college who sort of shaped your thinking also about the kind of career you might take? – Well it was, I had wonderful teachers. I’m of that generation where
there are only two things that a woman could do if she wanted to do something other than stay home and that was she could become a nurse or she could become a teacher. And so there was some awfully
able women who taught me from grade school on and
what they opened me up to was the possibility that
I too could be a teacher. And frankly, that’s when I
went off, when I went off to college the whole idea was
so that I could be a teacher. That’s what I wanted to do. I just didn’t quite know what kind of teacher I ended up becoming, so. – And at college what did you major in and what were the focus of your interests? – I came to college on
a debate scholarship. I was 16 years old when I
graduated from high school and I got a full scholarship in debate that was room, board, tuition, books, and a little spending money. It was a fabulous scholarship. At George Washington University
if I would debate for them. It was sort of the equivalent
of an athletic scholarship only this one that
actually a girl could get. Even though there weren’t very
many girls in debate either. I was gonna be a teacher
and I quickly switched over and decided what I wanted to do was work with brain injured children. So I got my degree in speech
pathology and audiology. Which meant that I would be able to work with children who had head trauma and other kinds of brain injuries. And that’s what I did. – Um-hm, for awhile. I mean you actually pursued that career? – I actually did. I was married at 19 and then graduated from college actually after I’d married. And my first year post
graduation I worked, it was in a public school
system but I worked with the children with disabilities and I did that for a year. And then that summer
I actually didn’t have the education courses so I was on an emergency certificate it was called. And I went back to graduate school and took a couple of courses in education and said I don’t think this
is gonna work out for me. And I was pregnant with my first baby. So I had a baby and stayed
home for a couple of years and I was really casting about
thinking, what am I gonna do? And my husband’s view
of it was, stay at home. You know, we have children
we’ll have more children. You’ll love this. And I was very restless about it. And so I went back home to Oklahoma. By this point we were living in New Jersey because of his job. I went back home to Oklahoma for Christmas and saw a bunch of the boys that I’d been in high school debate
with and they’d all gone on to law school and they said
you should go to law school. You’ll love it. And I said, you really think so? And they said, of all
of us you should’ve gone to law school. You’re the one who should’ve
gone to law school. So I took the tests, applied to law school and the day my daughter who
later became my co-author turned two, on her second
birthday, I started law school at Rutgers Law School in New Jersey. Which at the time had
the nickname of being the people’s electric law company. – I see, all the lawyers for the, yeah. – That’s right, these were the kind of wild and crazy lawyers. Arthur Kinoy who was
just a wonderful figure and had been very active in
the civil rights movement. Its a very small law school
and I’d never met a lawyer. I mean I never, I didn’t
travel in those circles. And I took to law school
like a pig takes to mud. I mean this was fabulous,
I loved law school. And then my third year,
final year in law school I got pregnant again
and I didn’t take a job. Alex was born about three
weeks after I graduated and it was the hardest moment in my life because I thought that this
world that had opened up to me, this world of
ideas and law was a tool. You could make things happen with it. I thought, because I
didn’t take a job right out of law school, it was all over. I just kissed it all good bye. I stepped off the train
and would never have a chance to get back on it. So I took the bar, hung out a shingle in northern New Jersey. Did real estate closings
and little incorporations and lawsuits, all on the civil side. And raised my two babies. And then Rutgers called and
said somebody didn’t show up to teach a class, would you like to come and teach it and start Thursday? And I said, yeah. How hard could it be, right? And so I started teaching
and then my husband got transferred to Houston
and I got my first full-time tenure track teaching job, teaching at the University of Houston. We ended up divorcing and then I went to the University of Texas, I remarried. Went to the University of Michigan. Went to the University of
Pennsylvania, went to Harvard. – And now at Harvard. – [Elizabeth] And now I’m at Harvard. Isn’t that an amazing story? – It is, and one of the
things that I hear here is you’re, this is kind of a turning point in women seeing a different
role for themselves. I’m curious, what do you see in addition to the opportunity that
was suddenly presented in your background that made you able to seize these opportunities? – You know, partly my
mother always just said that I was just contrary. That some kids are just born that way. That she, families tell stories and those stories are, I
think both reflect what the children are and then they
shape what the children are. And the story that was always
told when I was very little is that my mother when I was about two and a half I would be allowed to play in the front yard but she
would tell me don’t go into the street. And I would look at her and
wait until she turned her back and step right in the street. I would just stand in the street. Just a little bit, just on the curb, but I would stand in the street. And my mother was big on switches. She’d pull a switch off
a tree and just switch the backs of my legs. And I’d cry and she’d tell
me not to go in the street. I’d cry and I’d step
right back in the street. And finally my mother said, she realized I was gonna go in street. So she said, okay so here are the rules for going in the street. You look this way, you look that way. But here’s how you safely go in street. You go on the other side,
you never wanna stand in the street, gave me all
the rules for the street. And I was perfectly happy. And I think partly it was that
I always had my neck bowed. I was always gonna do something else. When we were able to pick an elective and all the girls picked drama I, of course had to pick debate. When you know all the girls dropped out of doing something I said
I was gonna take physics. You know, just because. So there was a little
bit of the just because. And it was a moment, it was a moment. When Gloria Steinem was out there talking did I think that I was going to be one of those women’s liber’s, heaven’s no. I wanted children, I wanted a family. And I somehow thought those
were either or choices and yet I wanted to do things. And I just got lucky. – Adventuresome,
adventuresome and courageous. – Well I don’t know, I never
thought of it that way. I just thought of it as– I once was at a friend’s house and I saw that they had wallpaper in their bathroom and I thought it was the
coolest thing I’d ever seen. So I came home and I went to Sears. And I saw this brochure on
how you could do wallpaper and I took my baby sitting money and I bought enough wallpaper
to wallpaper our bathroom and I announced at the
dinner table two weeks later when it came in, I said,
I’ve bought wallpaper so we can wallpaper the bathroom. And my daddy said, nobody
knows in our family, see because it was always a family, nobody in our family knows how to wallpaper. He said what are you doing? And I said, how hard could it be? People dumber than us do it everyday. So its always been a kind of
a, you know you get out there and try it, the worst
that happens is you make a mess out of it and have
to throw it away, so. – [Harry] Try it. – Yeah. – So what does it take to be a lawyer? What are the skills,
what is the temperament? – You know, law is so multifaceted. Its almost like saying what does it take to be a college graduate? Law is an advanced degree in thinking and the practice of law can
mean so many different things. There are lawyers who are
transactional lawyers. They put deals together. They’re energetic, they’re creative. That’s how they use what they’ve got. There are lawyers who are trial lawyers. They’re argumentative
and aggressive and quick and that’s how they use
their talents and energies. There are lawyers who are
those detail oriented. Watch every last comma, every last period, and see how something fits into this slot and not that slot. There are lawyers who
are just good counselors to other people. They understand law but
they have that human part that lets them talk. There are lawyers who see the big policy and they wanna think about
how the law should be changed or how rules should be
changed and law is the tool that lets them look in those directions. So there’s not only
not one answer to that. I don’t even think there are 10. Law’s for people who wanna make changes at little tiny levels or great big levels and they’re willing to use words and ideas to make those things happen. – And you started in
commercial law, really. That was what your scholarship
was in but then you moved to the public realm. So help us understand how
that transition came about. Was it the limits of what
the law could achieve that you came to see and your
concern about public issues? – Well I was doing my research,
happily doing my research and you know the nice thing about being a professor is you get to work on whatever issue you wanna work on, however you wanna do it. And so I did my very first empirical study looking at the families who
were going into bankruptcy and I teamed up with a sociologist who was a good test design person who
taught me an enormous amount. Dr. Terry Sullivan who’s now the provost at the University of Michigan and we were just baby law professors. And Jay Westbrook another law professor at the University of Texas. And we put together an empirical study for the families who were going bankrupt. This is back in the early 80s. And I’ll tell you what I set out to prove. I set out to prove they were
all a bunch of cheaters. My take on this, my
thrust, what I was gonna do is I was gonna expose these
people who were taking advantage of the rest of us by
hauling off to bankruptcy and discharging debts that
they really could repay. Or who’d be irresponsible
in running up debts. And I did the research
and the data just took me to a totally different place. These were hard working,
middle class families who by in large had lost jobs,
gotten sick, had family breakups and that’s what was driving
them over the edge financially. Most of them were in
complete economic collapse when they filed for bankruptcy. There was no option to bankruptcy except to just stay deep in debt
for the rest of your life. They would never pay these debts off. And so it changed my vision but it certainly didn’t
make me want to talk about it in a public sense. I wrote those academic
articles, academic books. Full footnotes, that’s what it was about and then in 1994 Congress passed a law saying they were gonna have a commission on bankruptcy. And political appointees
and Mike Synar, congressman from Oklahoma, had just
been voted out of office and President Clinton made him
the head of the commission. And Mike came to me and said I want you to be the one who comes up with the ideas and you know, guides us. These are not bankruptcy
specialists, guides us through it, helps us with research. I said, no, not a
chance, that’s political. I wanna be pure, I wanna be pristine. I don’t wanna muddy what I do
with political implications. I’m gonna sit here, I’m
gonna do my research. I’ll turn out the numbers and what you do with them is your business. – And that’s the academic
lawyer saying that? – That’s right, that was the
academic, academic lawyer. Saying and you go do what
you wanna do with it. And Mike said, come and do
this so that we have good ideas to work with and here’s
what I promise you. I promise I will totally insulate you from the political part. You will never be called
on to talk to a reporter. You’ll never be called on to
get into a political fight to make the compromise
to make those decisions. Just feed me the good ideas,
feed me the good data. I want three good ideas from
you and I’ll take ’em out and sell ’em in Congress and
sell ’em to my commission. And I said yes, finally. It was a hard decision for
me ’cause I really felt like I’m jumping into a different pool. I’m losing this protection
of the ivory tower. And so I said yes that
I would do it but only on the promise that he
would keep me insulated. And then he got brain cancer and he died. In the space of months, just
as we’re getting started with this commission and
there were other people on the commission who
were perfectly willing to take it over and who
frankly in my view, just had a totally wrong headed view about the families who were in bankruptcy and the changes that needed to made. And I just looked around and
said, look either I step up or nobody does. These people are gonna
entirely run this commission and use this commission for what I thought were very harmful ways. And that’s when I waded
into the thick of it. And started taking much of my research and translating it much
more into public policy. Here’s what we need, here’s
why we need it, here’s how it connects up with the policy decisions that we have to make. – Now if you had stayed with just this academic lawyer hat on and these circumstances hadn’t unfolded as they did, what route
would your work whether on the commission or not, would
it have been well changing the wording in these laws or what? Where does the law take you? – You know that’s the amazing part. The work would have been
so sterile by comparison with what it turned out to be. Oh yeah, I’d have had great ideas for how 11 US C-13 26
B two double I should be modified in order to achieve
a more harmonious result. But oddly enough it was
wading into the politics and beginning to understand
the rest of this world that is what shapes law. Its a law in society point and it began the political part ultimately
enriched my understanding of the scope of the problems. It took me far beyond bankruptcy and much more into questions
about what’s happening to the middle class. It was often, in trying to
explain to other people, the narrow part that it was other people who would ask me the bigger questions. So why are families in so much debt? So who are these people who
are filing for bankruptcy? Or sometimes it would simply
be their allegations of fact. Well we know its just the
poor and the profligate. That would cause me to say I wanna go back and study this some more. And so it enriched and
in many ways transformed the work that interested me as a scholar. So I was a scholar but
I moved into, from kind of a one dimensional scholar
into a two dimensional scholar. – Before we talk about this
problem of the middle class which is the subject of your lecture. I wanna explore some of these
elements of the political. We’ve gotten you into the political realm. One thing that you mention in your book and actually you just said
that your attitude about these people who had gone bankrupt was that it was their fault. That they had failed, that
they had been spenders. That they had been
whatever negative values we can associate. Now, that serves a political
purpose to believe that. Even if it’s correct. Did you begin to put
those two things together? – Absolutely, that’s how it began to work. I began to see that there were a lot of people who really just didn’t
care, one way or the other who the people were
who were in bankruptcy. They’d taken a lot of money from the banks and the banks had said,
the credit card companies had said this is the piece of legislation we want,
we find it helpful. Well in a democratically
elected congress how on earth are you gonna pass legislation to benefit two dozen, already
powerful multi-billion dollar corporations at the expense of all the people who are your constituents? ‘Cause this is a straight wealth transfer. Is it gonna go to the
credit card companies or is the money gonna
stay with these million and a half little families that are filing for bankruptcy every year? So they would just make
these assertions about who these people were. And at first I believed
these were assertions made out of ignorance, ’cause frankly I made the same assertions 10 years earlier. Before I’d studied,
before I’d worked on this. And so I’d come in with the
data and say well actually let me show you how this works. And here’s a random
sample of 1250 families and here’s how they were chosen and here’s what we know about ’em and look at what happened to them. And people just didn’t wanna hear it. And finally it was senators
themselves who said, professor, you don’t understand, so and
so over here has taken $300000 from credit card companies and
financial services industry over the last so many years. And this is something that industry wants. They hire lobbyists. I see two lobbyists a day in here from the financial services
industry to make this happen. And so the reality of these families lives had to be reshaped to tell a a
politically acceptable story. We need to pass this piece of legislation. All the arrows run the wrong way, right. Its that the credit card companies wanted a piece of legislation to cut their losses and boost their profits. And so the story had to be told that this is the fault of these families
who are in financial trouble. And you know, I wish that story were true. But the data are not just
close on this question. The data are just
overwhelming on this question. That is just simply not the truth. And so I think its part
of a whole larger story of we don’t have to
provide health insurance for folks because decent
people, people who worked hard and got an education and
therefore got good jobs already have health insurance and
there’s just an undertone of those who don’t have
it probably either made the choice not to spend the money on it, or have made other bad life choices that caused them to be in a
place where they don’t get it. And you know if that
means they don’t get much health service or they lose their homes if they get sick, its all their choices. Its all on them. I sure don’t need to tax myself to build a social safety net for
things that may go wrong to any of us, ’cause
it didn’t happen to me. Its their fault, we have a
lot of control over this. – Now the narratives, and
which narrative dominates which is what you’re talking about here. There’s some irony here
because, especially the conservative forces
in this country talk about values, they talk about preserving the family, they talk
about all sorts of things which suggest that they
would a narrative like the one that you’re telling. But the end result is that the lobbyists and the financing of
campaigns, I guess, lead the politicians to embrace a narrative that is inconsistent with the data. And then pass laws and
lets point this out, the laws would then change the rules about the interest rates that could
be charged on credit cards. So its little pieces of detail. – That’s right, very technical. Very hard for the popular
press to write about. The changes to the bankruptcy
bill, to take that example, but there have been other changes. The bill was 1100 pages
long of impenetrable text. And it was deliberately written in a way that if you weren’t a specialist. Look, I’m a professor of law at Harvard. I’ve taught this stuff now
for more than 20 years. I couldn’t read the thing. I had to keep one finger in the statute, and one finger on the amendment and the bill ultimately passed in 2005. I wrote, readjusted my case book. So I’ve written a book about the changes. And to this day I’m still
finding surprises in it. Someone will call me about something and I’ll pull the
provision out and I’ll look at it and I’ll say oh my gosh,
when did that one slip in? This is a case in which literally, the lobbyists wrote the bill. I’m not being metaphoric here. They in fact have bragged about it in American Banker’s
Association newsletters. The lobbyists wrote the bill. The credit industry paid for it. The campaign contributions
then paved the highway for the bill to get passed and ordinary families just lost out. – Let me show your book
again, The Two-Income Trap. And in this book there
are a couple of pages on a meeting you had with Hillary 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. – Don’t give the story away, that’s right. So the story is that
when the bankruptcy bill is first being proposed. This commission I said,
President Clinton appoints some folks, the commission gets started. And in 1997 commission delivers its report and says, basically we need some changes to the bankruptcy laws
but frankly they were a little bit more pro-consumer. We need some pro-consumer changes. And a few, lets close up
a couple of loopholes. Credit industry said, no, no, no. Credit industry says, we
wanna make it a lot tougher for families to go bankrupt. Quite frankly, bluntly
the Clinton administration was quietly supporting them. Remember that whole notion
of the new democrats? We can, business can count on us. The banks can come to us and
we wanna be their friends. And the idea was a bankruptcy bill, its a bunch of technical
changes, who gets hurt? A bunch of people who nobody
pays any attention to. And so we’ll show that we can play ball. 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. And I got a call about a week
or two after the op-ed ran. And they said Mrs. Clinton
was gonna be in town giving a speech and would I be
willing to meet with her? I said, you bet. And I said, what’s she wanna 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 in the back of, behind
the stage on 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 tell ya, 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 page and she’d anticipate. She said, so that means
what’s gonna happen on this next, I said 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 had been pushing,
pushing, yeah we’re gonna support this bill to er, 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 and Bush had moved to the White House. They now had a 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– – [Harry] From New York. – 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. And my own view of that
was less about anger and more about despair. Because if Hillary 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 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 oppose 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. – And so what it then is,
is the political answer? Is it information? Is it organizing? Is it blogging, which you’re now doing on Talking Points Memo Cafe, yes? – Well you know partly,
I’ll back up a little bit for the answer. I believe now in guerrilla warfare. I’ll go anywhere, I’ll do anything to talk about these issues. And its a lot more than bankruptcy. Its about the economics of the family. Its 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,
you know 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 awhile, 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. And what that starts to tell you is there’s not anybody left
in America now, middle class America who doesn’t, who
either hasn’t gone bankrupt or doesn’t have a brother or a cousin or teacher, or a sister, or
a dear friend who hasn’t lost a job, who hasn’t gotten sick. Who hasn’t had to go through this process. We’re on target now, just
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 can 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-ah, 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,
they have backed off now and said on bankruptcy
issues, on credit card issues, on payday loan issues,
on home mortgage issues, Congress has gotta go a different way. Now have they yelled it
from the rooftops, no. But the cracks are starting to appear. – Lets go back and talk now
about this bigger picture of where the middle class finds itself. Both from your own personal experience, from what you were experiencing as a lawyer academic
studying these issues. What we’re witnessing, beginning I guess in the 70s is a major economic transition in this country affecting the family and everybody’s running to catch up. Talk a little about us,
give us that big picture. – So in the second half of 20th century the single most important
economic thing that happened is that millions of mother’s
poured back into the workforce. 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 the family, unlike the first 70 years of the 20th century where
productivity went up and wages went up, the
family, there becomes a split. Wages flatten for men and
the family does better only if they can put two
people in the workforce. And the norm switches
from a one earner family to a two earner family, becomes the median for those who are lucky enough to have it. And you’d think, now if
you thought well that’s the only thing that’s
happened, we should be richer. We should have more savings. We should have very little debt. But expenses in the same 30
year period far outstripped what the families are spending. And I’m not talking about
consumer price index. So here’s the division. Families today, just I wanna compare a mom, dad, and two kids today with a mom, dad, and
two kids 30 years ago. When you started a
family in 1971, as I did. What happens on spending? Start with the consumption,
this is what everyone, this again the popular medium,
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 spent a generation ago. Where they spend more is for
three bedroom one bath house. The median family is
spending about 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
childcare, which of course they didn’t do a generation ago. – [Harry] Because the mother was home. – Because the mother was
home and they are paying more for taxes because 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 childcare. Today the median two income
family is spending 75% of their income on those
five basic expenses and with two people in the
workforce they actually have fewer dollars left over
than their one income parents had a generation ago to cover everything. To cover all of 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 we have 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 old 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. – 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 mom’s 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 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 and in fact, think about it for a second, it creates its own vulnerabilities. So today a family, instead of having to have 52 paychecks to be able to make the mortgage payment and
keep the health insurance. Remember that budget, they’re spending 75% just to make the nut, that
means they gotta bring home 104 paychecks, and that
means they have double the risk someone will get laid off. Double the risk somebody will get too sick to go to work and here’s
the new one that’s come in. Today if a child gets
sick or if grandma falls and breaks a hip someone’s
gotta 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 gotta
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 30 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 is pretty strong if you’ve already committed
75% of your income on these expenses, has just climbed over this same 30 year period. So people, put it all together,
its 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, just 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 workforce. They’re trying to do you
know, homework at night with the kids and hold it all together. And yet economically
every part of the game is loaded against them. – And 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 sort of impact this very vulnerable situation
even to a greater extent over time and its all
about, I want my kids to have the best education. – I want my kids to have a shot at 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 gotta get
to the right zip code. ‘Cause the right zip code will determine the school assignment for your child. And what’s happened is prices have shifted on those zip codes. So here’s one, now 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 costs to buy the same, their housing, their three bedroom one bath. Families with children,
saw a 100% increase in that same time period. Why, not because they’re all desperate. Families with children have a bigger need for granite counter tops or spa bathrooms but because housing is the substitute way to buy your way into a
decent school system. We pull out the studies in this that show that housing prices
will reflect things like a five point difference in
third grade reading scores. 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 wanna be clear here,
this is white families, African American families,
Hispanic families, Asian families, its 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 in to 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. – Now you know, all the literature and comparative politics
writing about democracy. Democratization, I think
they point to the importance of the middle class as the foundation of a working, democratic system. What are the long term
implications of what you’re saying? I mean obviously bankruptcy is one but it would seem to suggest that just as in foreign policy and
domestic policy, our system is not working very well, if at all and it has long term
consequences for what we’re gonna be in the future. – Absolutely, a strong
middle class is what gives us a strong democracy. Its what gives us a strong economy. Its what makes us flexible and
able to compete in the world. Its what makes us who we are. Here’s what I fear, here’s what I think these data point toward. I think they point toward
a larger upper class. I don’t wanna take away from that. There are more people who are doing well. And I’m not just talking about
at the billionaire level. I’m talking about at the
150000, $200000 level. Its a bigger group. If you don’t get sick, if
you don’t lose your job, if you don’t divorce, if you don’t have a death in the family. If none of the stumbles
hit you and you’ve got a good job and you hang
onto it for 40 years you’ve got a good chance to
be in a new upper class that is larger. But the rest is just one big underclass. Its families that are
living paycheck to paycheck. Who are dealing, this
week with debt collectors and next with late fees and 29% interest on the credit card who
are on a kind of treadmill that they can never get out of debt, never put anything aside in the way of savings. They have sort of better
moments and worse moments. But its no longer the
differentiation between the poor and the middle. Its between the upper and everybody else. Because everybody else
lives on a financial cliff and some are getting pushed off. Some are just gonna hang
on the edge of the cliff. I fear we are moving
toward a two tier society and that government
policies have pushed us in that direction, have
encouraged that division. Have made it more comfortable for those in that larger group of well to do and much more dangerous for those who are the big underclass in America. – If one were to address
this as a political problem I hear in our conversation two elements that strike me as rather important if one is gonna change the
political configuration. One we’ve talked about the religion, which is articulating a
set of ideas about virtue and goodness and so on that
don’t address the problem at all as you pointed out. But then the other is America’s role in the global economy where
in fact what we’re doing is spending ourselves into debt and that to make it appear that we are doing economically better than we have we’re
essentially giving people as much money as they want. You know, at adjustable rate mortgages which we will now discover
may create problems. But in fact the Japanese and the Chinese are willing to finance this so long as we continue to buy their products. So these are two very
powerful configurations, political configurations. What we’re doing internationally and what, the way we’re
presenting a narrative at home that strike me
as quite formidable. And that only collapse will change things. – You know, and I wanna add to it. I’ll tell you both my hope and my fear as I draw these together. I put my nickel on education
if Americans are going to remain competitive,
that’s our only shot. We can’t afford to waste a
single young person in America. We need to get as many
of them as well educated as we can and that means
on through college. And that has become the
new secular religion. Twice as many people believe
that the moon shot landing was faked than believe you can make it in America without a college diploma. So we have this huge appetite for that’s the final thrust to get my children a chance to be in the
middle class, college. And yet what’s happening with college? We don’t pay for it collectively. We make families pay for it individually and we make the students load up on debt so that the next generation’s
huge division here is that the children of
well to do families who can afford to pay for
the college education for their children, they have a leg up. They start their adult
lives, if nothing else at least dead flat broke, right. At least at even. The children of that huge underclass start with tens, sometimes hundreds of thousands of dollars in debt. And for some it’ll be a good investment and for some it will be the
rock that will sink them. They start the great
American race 50 yards behind the starting line, much
less the finish line. They’ve got all this debt
that they’ve gotta manage and all this debt they’ve gotta pay off. And we’ve written laws to make it that these debts are none dischargeable. You can’t get out of these debts. If you get sick you still
have to pay these debts. If you don’t have a job you still have to pay these debts, really tough. And so we put this in a global context. We need an educated America
to help us compete around the world to make good jobs, to make there be a reason to have good
jobs here in America. And what I fear is that we not
only have mortgaged our homes have mortgaged our incomes
going forward between the subprime mortgages
and the credit card debt and the payday loans, but that the way we’re financing
college educations right now, we are mortgaging our
very future in this world. And that the America that
I knew, that I grew up in, will be something that will be confined to the history books. But it won’t be there
for my grandchildren. – One last question, we
have not much time left so a brief answer, what can
people do about all of this? The audience out there watching,
should they become part of consumer groups, should
they get involved in campaigns? What do you advise them to help change– – Yes, that’s part of it. Part of it is, they need
to do it, its the you know, think globally and act locally. Partly they need to do it
with their own spending. I ended up writing a book
we didn’t talk about today and that’s fine, but that I’d
never thought I would write. All Your Worth, that talks
directly to families about how to budget, how to get outta debt. How to get out from underneath
this giant credit machine that wants to eat families alive. So it is, its partly about politics. If you don’t email your
congresswoman or congressman and your senator then you
are part of the problem today in my view. You’ve gotta tell ’em this is
an issue that matters to you. This really truly matters. We may finally do something
about global warming because enough people said
this one matters to me. The same thing has gotta be true about the economics of the middle class. About debt, about credit card companies, and mortgage lenders who
are writing all the rules and running the show. So yes, you’ve got to let people in government know that
this matters to you and you’ve gotta do what
you can to stay away from these vultures. – Professor Warren on that
note, I wanna show your book one more time, one of your books for the general public,
The Two-Income Trap. And the other one is called, I forgot, what is your other one called? – All Your Worth. – All Your Worth, which is a manual for managing your own
finances in this country. But thank you very much
for being on our program and for doing all this good work. – Its a pleasure to be here, thank you. – Thank you, and thank you very much for joining us for this
Conversation with History. (light music)