Back! I should have mentioned I was going on vacation before I left, instead of after. But I’ve spent a productive two weeks traveling. I stood up to my good friend Ed’s wedding, with helping to arrange an appropriate bachelor party beforehand: Tom Collins were drank on a boat (note: unopened PBR cans float in a lake, so they can be thrown into a lake from a boat and you’ll find them), a wide variety of sausages were driven in from the southwest side of Chicago to be grilled and rented AK-47s were shot at Don’s Guns. I visited Chicago, and Big Star Tacos are as good as the hype. I went to celebrate the 75th anniversary of Social Security at the new FDR Presidential Library special exhibit. And a bunch of other things.
Catching up: This Edward Luce piece on The crisis of middle-class America was discussed recently by Scott Winship in A More Productive Path than Self-Immolation, which starts “Seriously, it’s discouraging to see so many people who should know better (because they’ve argued these points with me before) promoting this article.” This could be a reference to me, so I’ll respond. You should read both if you haven’t already. Four things.
The share of mortgages either in foreclosure or 3 or more months delinquent is 11.4 percent, which, because 30 percent of homeowners have paid off their mortgage, translates into 8 percent of homes. So the Freemans’ situation is typical of about one in twelve homeowners, or not quite 3 percent of households (since one-third rent)….
This is bad Elizabeth Warren research—she counts a bankruptcy as being “caused” by illness or accident if one was reported, but the household could have been in serious debt before these occurred. At any rate, bankruptcies are exceedingly rare (under 1 percent of households—see Figure 13).
So only 1% of households go bankrupt in a year, and only 11% of mortgages are delinquent or in foreclosure. That’s not a big part of the population, that’s not even a majority. So what’s the problem?
My friend JW Mason called this argument the Marty Blank gambit, after John Cusack’s character in Grosse Point Blank, who defends his job as a hit man on the grounds that the number of people he’s killed is “not that many, as a share of the population.”
I mean, U3 unemployment is only around 9.6%. That’s not even 1 in 10. What’s the concern? Should we also not worry about unemployment?
Well, there’s massive externalities, opportunity costs and devastated savings and household balance sheets associated with the foreclosure crisis. It’s well known that a foreclosure devastates the value of the home itself and the neighboring properties surrounding it. I’m past that and now focused on the costs to the municipalities itself. According to a 2009 study by the Urban Institute a foreclosure costs the municipality close to $20,000. Every third foreclosure is a teacher’s salary. In an environment where muni’s are already struggling, the massive hit of the foreclosure wave is overwhelming.
We’ve discussed it elsewhere here, but the foreclosure crisis that will be ongoing for the next 18 months will complicate unemployment, as underwater homeowners can’t sell their home to move to a new job, household balance sheets, as someone with an LTV of 150 will spend close to a decade paying off worthless debt to get above water, and create “uncertainty” among investors as the mark-to-fantasy valuation of second liens and RMBS slowly will have to conform to reality.
I’m not sure if bankruptcy is “exceedingly rare.” 1% a year sounds low, but let’s put that in perspective. There will be approximately 1.65 million bankruptcy in 2010; I believe that is higher than the number of divorces in 2008 and in general the number of divorces over the past 10 years. How many divorces do you know about? There were more bankruptcies.
Luce is arguing that there’s a new crisis facing the current generation.About 30 percent of those age 18 to 24 were uninsured in 2008 when the National Health Interview Survey contacted them.I don’t have trends for that age group, but the share of Americans under age 65 without health insurance coverage was 14.7 percent in 2008, up from….14.5 percent in 1984.
Uninsurance rose through 1994, and declined in the mid and late nineties, but has been increasing mostly since 2001. The consequence of being uninsured is much worse today than in 1984, since medical costs (as a fraction of income, or in real dollars) are many times more due to the high rate medical cost inflation. And there is a lot more underinsurance today that there was in 1984.
Time-use surveys show that while parents spend more time working (because of mothers) than in the past, they do not spend less time with children. They spend less time doing things by themselves.
The study Winship links to is published in 2007. I’d be curious as to what he thinks of the recently released Pew poll:
The Pew poll showed nearly half of people who had been unemployed for more than six months saying their family relationships had become strained, and a New York Times/CBS poll of unemployed adults last winter found about 40 percent saying they believed their joblessness was causing behavioral change in their children.
Parents who have jobs are working longer hours than ever. Mothers are taking shorter maternity leaves. The birth rate is on the decline. The divorce rate is declining, too — it’s too expensive for people to break up their households — but that’s not necessarily a family-friendly thing, as a report from the Council on Contemporary Families noted in April: “We know from the experience of the Great Depression of the 1930s that divorce rates can fall while family conflict and domestic violence rates rise.”
We’ve discussed the effects of unemployment on children repeating school years. Annie Lowrey wrote an amazing piece on the increase in suicides during high unemployment, with the correlated mental health problems going with that. I think there’s a lot of suffering out there with a so-called “new normal” of high unemployment.
Adjusting for household size and using the PCE deflator to adjust for inflation, median household income in the Current Population Survey rose from $29,800 in 1973 to $40,500 in 2008 (in 2009 dollars, again based on my compuatations). Factoring in employer and government noncash benefits would show even more impressive growth.
Genuine question: should we use the PCE deflator when we talk about the feelings of economic security? Should we stick with CPI? As people get squeezed by increasing costs of middle-class security and the threat of higher unemployment they’ll increasingly turn to
eating cat food exogenously finding themselves with a low food inflation rate necessary to maintain constant utility and it is good to get an account of that switching between consumer goods. There’s been an increase in the quality of other consumer goods; a computer today is much better than a computer 10 years ago though they cost they same. That should be accounted for.
But these aren’t the effects that we are looking for. The people in this story are concerned about a basket of security goods: health care, housing, energy, food, future earnings and labor, retirement and savings, liquidity. They are also interested in fighting for their quality of life. This is less about how cheaply one can substitute into cheaper goods while “maintaining utility” and more about a decent safety cushion and a belief that the system is working for them. It would be good and worthwhile for us to create a measure of inflation and quantify how this too has been changing over the past decades.