The Coming Collapse of the Middle Class

Elizabeth Warren, professor at HLS, speaks at UC Berkeley on changes in the finances of the typical family:

Before listening to this talk, I had always assumed that Americans had so much debt because of excessive consumer spending. According to Warren, however, the biggest increases have come from fixed costs like mortgages, car payments and education. I would say that overall it is a huge conversion of good debt to bad debt, due to an exacerbation of the principal-agent problem – in both education and in big financial decisions, I think buyers today often have a huge information disadvantage.

Warren also mentions the shift to both parents working in the typical family, and the tying up of resulting increased income in large, inflexible fixed expenditures. I think most people underestimate the fragility that results from such an arrangement, and still follow the same expenditure patterns as the last generation, and that is the cause of a lot of the inefficiency – it is the result of overestimating one’s capacity for risk.

I wonder what the analogous development in Asia would be.

Hat Tip: Economist’s View.

One Response to “The Coming Collapse of the Middle Class”

  1. […] few weeks back, I posted a talk on the collapse of the middle class. In that talk, rising education expenses were identified as a […]