Priced out of the American Dream

Marketplace Staff Nov 13, 2007

Priced out of the American Dream

Marketplace Staff Nov 13, 2007


Doug Krizner: Time now for “Consumed”, our special, week-long series on this and other American Public Media programs. We’re looking at the consumer economy,
and the consequences of our urge to shop.
Dwindling resources, a warming planet, mountains of debt.

Harvard Professor Elizabeth Warren has spent a career looking at personal debt.
I asked her if consumers can sustain the engine of our economy much longer.

Elizabeth Warren: No, it’s not sustainable. We’ve built this latest economic boom on borrowed money. Consumers, to the extent that they’ve stayed afloat, have managed to stay afloat by using their credit cards and by taking out home-equity lines of credit.

Krizner: And they’ve used that credit for what? For lattes and microwaves and expensive vacations? Have Americans been over-consuming?

Warren: I wish that were the case, but the data say otherwise. Americans are in a lot of debt not because they’re overconsuming, but because of big fixed expenses that they really can’t wiggle out of.

Krizner: When you say “fixed expenses,” what are you talking about?

Warren: Where American families are getting ruined financially is in the areas of mortgages and health insurance. The fact that they’ve got to have two cars, the fact that they’ve got to put their children in child care, their taxes — the things over which they have little or no control.

Krizner: But can that really be the whole story? I mean, in gross numbers, consumption has tripled, apparently, in about 20 years. Surely a good chunk of that is discretionary spending.

Warren: Let’s look at the basics. What families are spending on clothing in the last 30 years, it’s down 33 percent in inflation-adjusted dollars. What they spend on food is down about 20 percent. What they spend on appliances, down about 52 percent. It’s not stuff that’s driving families to the poorhouse.

Krizner: You’re describing a really tough squeeze. So how is this gonna play out in people’s behavior — what do you think?

Warren: I worry that there are gonna be some people that are going to delay marrying, there are going to be some who are not gonna have children, that the family life that sustains America, that makes us who we are, will become so expensive that many Americans will just opt out. And if that happens, everything that we understood about America starts to fade away.

Krizner: This would be an enormous social change. What about the economy in all of this? We’re often told that consumers are responsible for about two-thirds of Gross Domestic Product. Now if they start pulling back, what can we expect?

Warren: This is one of the scariest parts for me. The typical family is carrying now about two months’ worth of income in credit card debt. So what’s going to happen long-term? Do we have a period where all these families that are carrying all this debt simply cut back on their consumption so that they can pay off the outstanding debt loads? Is that gonna be a long, slow decline, or is it going to be a one-time smack? Either way, the consequences for the economy cannot be good.

Krizner: Elizabeth Warren is a professor at Harvard University. Professor Warren, thanks for your time.

Warren: Thank you for having me.

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