Wednesday, May 18, 2005

Class Warfare: Are Those Hoofbeats I'm Hearing?

by Tom Bozzo

I'd held off on reading the MSB (*) for a while on Sunday (when this post was started) so I could retain the feeling of small blog triumphalism I felt seeing the kickoff of the series on Class in America in this morning's New York Times. The subject would have been old hat to anyone who had happened upon Phantom Scribbler's fine post musing on class and social mobility from last week, or this post from Raising WEG (and its sequel), much as someone might have scooped Jennifer 8. Lee had he or she witnessed the Madison men's blogger collective in action at the Harmony Bar a couple months ago (**).

Phantom Scribbler spends considerably more effort than the Times on the aspect of the issue that is of paramount interest to me, being "a one-income family in a two-income world." A related matter, the amount of labor that must be supplied by most families to maintain middle or upper-middle consumption patterns, is touched on only briefly in the opening round.

As it happens, I am doing much better than I'd have expected as a flippy-haired late-teenaged undergraduate (***) — the subsequent decision to stay a fifth year in college in order to turn English literature from a vocation to an avocation figures strongly here. Nevertheless, after the experience of being priced out of our old neighborhood when the time came to move up to a house more accommodating of Julia and the second-child increment of baby stuff, the temptation to ask where things went wrong was can be very nearly overwhelming. (****)

Part of it is an issue raised by some of Phantom Scribbler's "commenting pixies," and which would be old hat to regular readers of Rob Horning's Marginal Utility, which Brad DeLong states explicitly (though a counterpoint is provided) in his response to the first installment from the Times:
It may be a very big mistake to think that human happiness is necessarily and significantly increased by piling up larger and larger heaps of material goods... Happiness is attained when you achieve your dreams and solve your problems. Material abundance helps you do so, but it also teaches you to dream bigger dreams and pose yourself more complicated problems.
To reinforce the point, yesterday's Wall Street Journal ran three articles with at least mildly bloodcurdling implications.

On page 1, there is "Extra Credit: Lagging Behind the Wealthy, Many Use Debt to Catch Up," itself second in a series that is looking more trenchant than the Times's. A graph accompanying the article shows a gap between median spending and median household income, notably large for the Bush years, accounts for a good part of exploding household debt. (Very low real interest rates play a role, too, but those are also unlikely to last forever.) A bankrupt low-middle earner from Salt Lake City, living in an upscale neighborhood, offers what may be the founding motto of Bushonomics:
"We came to rely on credit as part of our income, even though it wasn't part of our income... I looked at $1,000 on my credit card as disposable income."
In Utah, which has markedly above-average bankruptcy rates, Mormon elders are justifiably concerned (reflecting an interesting institutional "ambivalence toward debt"):
Thomas Monson, the church's second-ranking leader, said [in an April speech] he was "appalled" at advertising for home-equity loans that is "designed to tempt us to borrow more in order to have more."
Indeed, there's an ad from a large bank with a local presence that runs fairly often on Madison TV in which the banker hands over to the seemingly single mom with tween daughter an equity-line-tapping debit card, which the subsequent dialogue suggests could be used for a foosball table or soccer-team party; not quite what you'd call teaching responsible credit use. The profiles of SLC debtors in the article suggest that marketing has the upper hand on official disapprobation, though.

To add some additional irony, the spread including the continuation of the story includes ads for:

A second piece, relegated to the front of "Personal Journal," provides a partial answer to the question of "If I can't afford those wildly overpriced houses, who the hell can?" In short: they can't, at least by fuddy-duddy standards of affordability. New data from the Mortgage Bankers Association show that two-thirds of mortgage originations are interest-only or variable-rate mortgages. A third, inside Personal Journal, shows that in the first quarter, double-digit year-over-year house price increases spread to nearly half of the MSAs surveyed by the National Association of Realtors. I was gripped by the fear that the real estate market is, in fact, in the process of running out of suckers.

I don't mean to excessively dump on advanced financial intermediation. Some of it does, as sky-is-blue types would say, "democratize" credit. The dark flip side to the equity-line ad is that in bad old days that I can remember, the mom depicted there would have been in the role of supplicant to the banker.

For my part, I did plenty of what economists would describe with the euphemism "consumption-smoothing" in grad school, which for better or worse put me in the position of seeking a low down payment variable rate mortgage... in early 2000, when I was highly confident of the near-term direction, if not magnitude, of interest rate changes. Some people do have a rational expectation of limited tenure in their current houses, or income patterns that favor maintaining low required payments (e.g., people for whom a large fraction of income comes from annual bonus payments). I'll go out on a limb and say that those categories can't account for two-thirds of mortgage originations.

It is also easy for me to say "be happy with what you've got," from the position of having what I've got. Doesn't necessarily make it bad advice, though.


(*) Mainstream blogiverse.

(**) Strictly speaking, having pizza and beer in a bar may not count, so maybe Oscar and I should take Jeremy to L'Etoile for a sendoff-to-Harvard dinner to test the "man date" waters.

(***) The existing pictures from the era, mercifully, are not in a digital format.

(****) That I'd say such a thing from the perspective of someone who can afford to worry about which three-liter engine my next BMW should have may provide some insight to readers as to why I'm so down on Social Security privatization and other efforts to dismantle economic safety net programs.
Thanks for the links, Tom! Though, since Jody started it, she gets all the credit for predicting the MSM zeitgeist.

Warn your friend Jeremy not to get his car towed, now that he's moving to Harvard. Trust me on this one. Oscar's wise observations on the subject will come back to haunt him, otherwise.
Welcome to the party here, P.S. The more, the merrier!

First things first, we'll need to get everyone back from Poland in one piece.

I've been led to believe that Jeremy isn't psychologically prepared for metro Boston traffic. So he may well ditch his car and end up living in a garret somewhere within walking distance of campus. Nevertheless, I'll pass along the warning.
TOM: I've been led to believe that Jeremy isn't psychologically prepared for metro Boston traffic.

KEN: The English translation of that sentence is "Jeremy is sane."

My bona fides:
I'm a mediocre driver (unlike many of my peers, I admit it; I also use turn signals, headlights, and anything else that says "look out for this vehicle" except the emergency flashers) with extensive experience in NYC and environs. You haven't been driven until you live in a Dominican neigborhood during the first decent snow and ice of the year with alternate-side parking suspended.

Boston SCARES me. And driving there at least once a year for over a decade has only made that fear WORSE.

Tell Jeremy to sell the car. The savings in insurance, maintenance, gas, as well as the opportunity not to spend his salary on parking tickets and repairs make that one a no-brainer if he lives anywhere near Hahvard Yahd.
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