2006 May 14 Sunday
American Middle Class Going Deeper Into Debt

The Center for American Progress, a "Progressive" think tank, has released a new report arguing that the middle class is going into debt due to rapidly rising costs of education, health care, and housing. Something has to give eventually.

America’s middle class is drowning in debt. A typical middle income family earning around $45,000 a year saw its debt burden grow by 33.1% between 2001 and 2004, even after adjusting for inflation. Debt relative to income rose even more, to 33.9%, during this period for middle income families. Personal bankruptcies among these households are rising steeply.

The reasons for greater economic distress among middle class households are not hard to pinpoint. Slow income growth between 2001 and 2004, the last year for which complete data is available, has not kept pace with the rising cost of big ticket items such as housing and education loans, medical expenses and transportation. Family budgets have been squeezed.

A common but misplaced assumption is that the growth in debt among middle-income families — those with incomes roughly between $25,000 to $70,000 a year — is the result of over-consumption through increased credit card debt. Rather, growth in debt is primarily due to heavier borrowing for investments in homes or education, both of which saw dramatic price increases in recent years. The cost of a college education, for example, grew by 26.3% between 2001 and 2004, after adjusting for inflation.

Specifically, this report finds:

  • Debt has expanded by 30.3 percentage points to 108.4% of income — the first time since the Federal Reserve started conducting this survey that debt exceeded income (See Figure A).
  • Despite low interest rates, debt payments surged to new highs. In 2004, the typical family spent more than 18% of its income on debt payments — the largest share since the Federal Reserve started collecting these data.
  • The share of heavily indebted households continues to rise. The share of households with debt payments greater than 40% of income rose from 12.8% in 2001 to 13.7% in 2004.

The data illustrate a more pronounced story about the economic situation of America’s middle class. In 2004, for example, the typical middle-income family dedicated the second largest share of income for debt payments (20%) relative to other income groups. And among middle income families, the share of families with debt payments greater than 40% of income rose the fastest among all income groups (3.2 percentage points from 2001 to 2004).

This growth in debt has been fuelled largely by loans for housing and education at a time of weak income growth. Households were caught in a bind that could lead them to take on more debt than in the past.

On education: Automate it. Governments that operate their own colleges and universities (e.g. American states) should film all college lectures and make them available at very low cost to their citizens. Tests for many topics could be automated with software. People could watch high resolution lectures and then take tests online to earn college credit. Bright and motivated teenagers could earn a couple of years of college credit before they graduate from high school. That'll save them, Mom, and Dad a lot of money for college. See my post Accelerate Education To Increase Tax Revenue, Reduce Costs.

Also, an end to lower IQ immigration would reduce the need of the middle and upper classes to pay for private education of their kids. Middle class parents pay to keep their kids away from dumber kids. Our current mix of immigrants increases the need for parents to spend more on private education. It would also reduce the number of people who do not pay enough taxes to pay for the education of their children.

A repeal of the US Supreme Court decision in Griggs v. Duke Power would also lower the cost of education. How? Currently employers (with rare exceptions) can not do IQ tests or other tests that will score some racial and ethnic groups higher than other groups on average. Therefore people have to spend big money and 4 years to go to a college or university that has tough acceptance requirements (essentially an IQ test) to prove they are smart. Most of what they learn in college does not increase their value to employers. The schools with the toughest admissions requirements can charge through the nose to grant the "high IQ" college degree. Repeal the Supreme Court's stupid decision and people wouldn't need to spend $100,000+ on an expensive proxy for an IQ test.

On health care: Stop letting in legal and illegal immigrants who can not earn upper middle class salaries. Deport all the illegals. Even legal immigrants who do not have citizenship should be deported if they do not have demonstrated ability to earn high salaries. People who make less get subsidized medical care. Some of that subsidy takes the form of cost shifting onto the medically insured with higher premium prices.

On housing costs: Stop immigration. That will lower the demand for land, for housing, and for the materials such as wood that go into making houses. That will bring about lower prices.

Mind you, the progressives have boxed in their thinking so far with taboos on the truth about IQ and human differences that they'd never consider most of the solutions I propose here. Also, all the academics and education labor unions would consider the idea of automating education as a threat to their gravy train. The Left is pretty useless when it comes to solving our biggest problems in ways that are reality-based. They are about as worthless and destructive as Bush and his gang.

You can read the full report (PDF format).

Update: Also see: Younger Generation Getting Poorer and Income Inequality Continues Few Decade Rise and Gap Widening Between Economic Classes.

Share |      By Randall Parker at 2006 May 14 04:51 PM  Economics Family


Comments
Wolf-Dog said at May 14, 2006 5:13 PM:

Although the middle class has gone into debt, that specific amount of money that was borrowed, was "inefficiently spent", in the sense that most of it was not invested in a competitive way such as extra education that will ultimately boost income and bring more revenue, but instead, the borrowed money was often spent for consumption. That money that was "spent" actually equeals the "gained" money of the upper class. The upper class lent that money to the lower class (one way or another, possibly by indirect loans to the government, and the government gave that money to the poor), and the lower class instantly returned that money back to the upper class by spending. This is getting convoluted, but the debt of the middle class and the lower class, is owned by the upper class. In the event of a depression, all debts will be paid, however... Either in the form of cash, or else by liquidation.

But let me put it in a different way: Unless the lower class (the below average income group, which is the majority, since the median income is lower than the average income), accumulates more debt, the upper class will NOT make a profit, because of the following reason: The Government Deficit spending is LESS than the foreign trade deficit. Had the foreign trade deficit been less than the government deficit sending (per year), then it would have been possible for the upper class to make an annual profit without impoverishing the lower class (defined as above.) This is a "conservation law" similar to physics or chemistry.

John S Bolton said at May 14, 2006 6:07 PM:

Wait a minute, the current account deficit is from central banks overseas, all but a small proportion involuntary. It's not investment, but foreign aid, i.e. dollar support. Class analysis fails abysmally here. Lenin's who-whom in this context, would refer to nations, but not classes.
Education: get rid of affirmative action, and the cost and demand lose their upward pressure.
Likewise, immigration intensifies every year, the problem from affirmative action, where the moderately prosperous and creditworthy, but of a particular racial-ethnic identity (contra class analysis), borrow more and more, solely to give their children, who are under legal disability regarding all kinds of recruitment, some additional education credentials.
Essentially this is a bribe to a traitorous and malicious professoriate, to allow these people's (not this class's) children to gain advancement in rough accordance to their abilities; to their abilities, such as are unequal between populations.

Ken Hirsch said at May 14, 2006 6:17 PM:

"A repeal of the US Supreme Court decision in Griggs v. Duke Power would also lower the cost of education."

Note that the Supreme Court itself limited "disparate impact" claims in Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989), but Congress passed the Civil Rights Act of 1991 specifically to overrule Wards Cove and make disparate impact claims easier. So now it would not be repealing the U.S. Supreme Court decision, it would be repeatling the Civil Rights Act of 1991.

Kurt said at May 14, 2006 7:24 PM:

Randall,

If you want a good "hah" about immigration and integration, check out Fred Reed's latest comments on his website (www.fredoneverything.net). Fred is definitely the master of political incorrectness (as well as being right).

Dave said at May 14, 2006 7:45 PM:

slightly OT, You may be interested though. Racist computer?
Cameras set racial poser on car crime:
http://www.timesonline.co.uk/newspaper/0,,176-2179561,00.html

"The technology allows car registration plates to be scanned and automatically run through databases to determine whether a vehicle is stolen, uninsured or has not had its road tax paid."

"Although ANPR technology is impartial, the disproportionate number of blacks being arrested has prompted the Met to investigate."

I've nothing against blacks, but its sickening the way people keep accusing the human police of being racist just for doing their job. Now lets see how people take to a computer giving the facts.

Agnostic said at May 14, 2006 9:15 PM:

It's not just that illegal immigrants & their legal children are lower IQ on avg than whites & asians; they're also more of a behavior problem in schools, even more so than blacks (I was shocked by that): http://inductivist.blogspot.com/2006/05/mexican-teens-have-worst-behavior.html

That's probably more of the reason why parents try to keep their kids in "good schools" -- to keep them away from bullies, and esp. in some parts of the country, the MS-13 gang.

DebtBlog said at May 15, 2006 6:04 AM:

Regarding deporting all those immigrants cannot earn an above average wage: What about the 70,000 workers the government lets in here every year with the H-1B visa program? The high tech lobby has persuaded congress that these highly trained employees are vital because there are too few Americans available for high tech jobs. That is patently absurd, especially after the Internet implosion at the beginning of this decade. Many employees in the technology sector were forced to take jobs in other industries or at reduced wages because there was a surplus of technology workers. What those business in the technology sector were really saying was "We can't find enough Americans to work for peanuts. Open up the H-1B program or we'll outsource these jobs to India." So they instead insourced the Indians here. Beautiful.

dearieme said at May 16, 2006 7:25 AM:

"the progressives have boxed in their thinking so far with taboos on the truth about IQ and human differences".

That's the gang who approve of Darwin? Shurely shome mishtake?

Randall Parker said at May 16, 2006 5:14 PM:

dearieme,

Glaivester rather succinctly summed up the Left's reaction to evolution:

Whenever someone denigrates evolutionary psychology, what they really mean is "I thought the whole point of evolution was just to deny God. I didn't think it was actually supposed to tell us anything."
Lindsey said at May 20, 2006 4:32 PM:

First of all, if you think we can just deport all the illegal immigrants, you are incredibly wrong. Our society depends on illegal immigrants whether you want to believe that or not is up to you.
I bet you don't know a thing about going to school with legal and illegal immigrants. Many, SO many of the kids in the school that I go to are immigrants and I'm sure them are many illegal immigrants. They don't cause a distraction at all. They don't misbehave.
In every grade, in every class, of every race you are going to have kids, preteens, and teenagers that think they are more important than everybody else, so they'll disrupt the class and bring attention to themselves. But I assure you, that those who disrupt classes are not all from a minority race. Disruptions are pretty evenly spread as far as which race is doing the disrupting.
As for parents who send their kids to private schools to get away from the bullies, gangs, and "dumber kids," they're just ignorant. The school that I go to did have a problem with gangs such as MS-13 and SSL, but the administration has done so much in the past year that there hasn't been a problem with gangs in a year.

have a nice day.

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