A Fighting Chance (12 page)

Our minds made up, we set about launching our unconventional version of a family business, and that’s how our book,
The Two-Income Trap,
was born. We started with a familiar question: Why are so many families going broke? Ask almost any pundit, and the response would likely have been: Families are going broke because they buy too much stuff! All those name-brand running shoes, closets full of clothes, and microwave ovens were pushing the middle class deep into debt. The “urge to splurge” was overtaking us.

Amelia tackled the conventional wisdom head-on. As it happens, for decades the government has been collecting data on how much families spend on pretty much everything—from frozen fish to pet food to boys’ pajamas. When Amelia dug into this trove of information, she found that the numbers simply didn’t support the story. Consider clothing, a favorite target for the pundits. Even when we accounted for all the Nike sneakers and name-brand sunglasses, the average family of four spent
less
on clothing in 2001 than they did a generation earlier (adjusted for inflation). What about food? Even including all the restaurant meals, Starbucks coffee, and fresh-squeezed smoothies, the average family spent
less
on food than they did thirty years earlier.

That’s not to say that families never frittered away any money. Americans spent more than they used to on such things as televisions, premium channels, and home computers. But they spent less on furniture and home appliances (microwaves included), and the savings just about balanced out. The balancing act held in other places, too. Families spent more on airplane travel, less on dry cleaning. More on cell phones, less on tobacco. More on pets, less on carpets. And when we added it all up, we realized that the hollowed-out middle class of Amelia’s generation wasn’t any more frivolous in its spending than the solid, comfortable, growing middle class of my generation.

So what had gone wrong? Wages were flat; that was part of the story. For most of the twentieth century, wages had risen steadily. But that stopped happening in the 1970s. For the middle class, wages (adjusted for inflation) had remained stagnant for an entire generation.

Other things being equal, the middle class might have made it through—no richer than their parents, but no poorer either. But other things
weren’t
equal, because costs went up for stuff that was a lot harder to live without, like health care and education.

And then there was housing. Millions of families did exactly what my parents had done two generations earlier—they stretched to buy homes in good school districts. But now the stretch was different. Thanks to a newly deregulated banking industry, the strict lending standards that my parents faced had gone the way of the dinosaur. Teaser rates, interest-only loans, and no-down-payment loans appeared, and families grabbed hold. Many figured this was their best chance for their kids to get a good education or to live in a nice neighborhood. The rush to buy homes seemed so hopeful at the beginning. But with all that money flowing into the housing market, prices were starting to climb fast, so even families who wanted to play it safe didn’t have much choice—take on a giant mortgage or get shut out. Much was said about fancy new “McMansions,” but that proved to be another myth, at least among the middle class. Most middle-class families lived in a house only slightly larger—and often quite a bit older—than the one their parents owned, and the huge, new homes remained the domain of the wealthy.

As the family budget got tighter and tighter, women all across the country made the same move I had made a generation earlier: they took a job. But I had gone to work because I wanted to, while a lot of these women didn’t have much choice.

Single-income families found themselves falling further and further behind. Even for those lucky enough to have two incomes, it often wasn’t enough. On average, once the basic bills were covered—the mortgage, the health insurance, day care, the cost of preschool or college tuition—the modern two-income family had
less
money left over each month than the one-income family of a generation earlier. Amelia and I called this “the two-income trap,” and middle-class families everywhere were caught in it and could see no way out.

Once families got caught in this trap, they had to make some hard choices. First to go was savings. Back when I was a young mother, a typical one-income family put away 11 percent of their take-home pay in savings. By 2001, even though many families now had two incomes, the savings rate for the average family was approaching zero.

For some families, working hard and pinching pennies allowed them to get by. If a married couple could somehow get their kids off to college (which now cost three times what it cost when they were young), they might pay down the mortgage on the house and still have a little left over to retire on.

But if anything went wrong—anything at all—they were out of luck. A job layoff, a long stretch of unemployment, or a serious illness, and the family careened off a financial cliff. They had no savings to fall back on. And because so many of the costs that ate up every paycheck were fixed, there wasn’t much room to “cut back.” They couldn’t just lop off the fourth bedroom for a few months or buy half a health insurance policy until Dad found a new job. They were stuck, and now the trap’s teeth cut a lot deeper.

Amelia and I turned in the first few chapters of our manuscript for
The Two-Income Trap,
and the publisher seemed to like it, except for one thing. It’s so depressing! Who wants to read such a bleak book? Make it happy! Make it hopeful!

We tried, we really did. But I felt as if someone were asking me to deliver stand-up jokes at a funeral.

Worse, we hadn’t even come to the really tough stuff. The remaining chapters of the book told the hardest part of the story: Once families ran out of money, they turned to debt. Credit card debt piled up—and up and up. Payday loans popped up everywhere and sucked in people who were in a crunch. And when someone missed a payment or fell behind on the debt treadmill, they got socked with staggering increases in their bills. The result?
Fifteen million
families filed for bankruptcy in a single decade and uncounted millions more were hanging on to the cliff by their fingernails. Home foreclosures were also starting to climb, even back in the 1990s and early 2000s. All we needed was the music from
Jaws
to signal that this debt monster was going to hurt a lot of people.

During the months when I pored over the research and carefully wrote that book, I came to some painful conclusions. America’s middle class was under attack. The nation’s broad prosperity had been forged by people like my parents—people who knew hardship and conflict and who kept on fighting, determined to pass on something better to their children. But the strength of the middle class was not unlimited. I felt as though I were looking at a once sturdy house that was crumbling: the windows were broken and the roof was caving in.

It wasn’t a happy story. Instead, the book was an alarm, a warning that our country was headed in a terrible direction. As we finished the book, I felt deeply, deeply worried.

Tell Someone Who Could Do Something

Apparently, I wasn’t the only person who was worried. Amelia and I had written a book that was aimed at the policy crowd (after all, I was still a professor at Harvard and the book had fifty pages of footnotes). But when it came out, in September 2003,
The Two-Income Trap
struck a nerve.
Newsweek
ran a three-page spread about the book, complete with a picture of Amelia in her backyard. The
Today
show brought me on to talk about the trap. Within days, the book was covered by CBS News, the
Boston Globe,
NPR, and CNN. In its first two weeks of publication, the book focused more attention on the economic security of America’s families than I’d been able to generate in nearly a decade of fighting the bankruptcy wars.

I figured we were onto something, and the optimistic part of my brain believed that suddenly I had a chance to make a bigger difference. So I tried reaching out to several of the men who were running for president in 2004: Howard Dean, John Edwards, General Wesley Clark, John Kerry. I also asked a favor from a well-connected Republican friend from Harvard. Could he get me a meeting with someone on the staff of President Bush?

My plan was to give each of them a copy of the book, tell them some key facts, lay out some policy ideas, and hope for the best. I had visions of long, thoughtful policy discussions, not unlike the first conversation I’d had with Senator Kennedy. Only now the conversation had to go beyond bankruptcy. Now I wanted to talk about a seismic shift in the middle-class family balance sheet, and I wanted our leaders to know that America’s middle class was in big trouble—and the trouble was growing.

In those days, I didn’t have the faintest clue about the pressures on someone running for public office. First they’d spend hours reading my book, and then we’d have long policy talks? Clearly I didn’t know squat.

Then one day in early 2004, I was walking through an airport when my cell phone rang. My caller identified himself as John—John Edwards. He said he had read
The Two-Income Trap
and wanted to talk about it. I was so surprised that as I wrestled with my roller bag, my phone, and my iced tea, I dropped my backpack on the floor. The zipper on the outer pocket wasn’t closed, so even as I was talking to Senator Edwards, I was scrambling to pick up the thousand things that had spilled everywhere. But the ideas in the
Two-Income Trap
clearly interested the senator, and he seemed to be thinking hard about them.

Not a relaxed, detailed conversation, but not bad. And over the next several months, Edwards called a few more times, and I was also able to talk with staff members from some of the other presidential campaigns.

Months later, at a rally in April 2004, John Kerry spoke about the transformation of the American family and said
The Two-Income Trap
was “one of the best books that actually describes the transformation that has taken place in America.” For me, that was a “wow” moment. Kerry was the presumptive Democratic nominee. Maybe he would become president. Maybe he would put a big focus on rebuilding the middle class. Maybe.

But Kerry lost. Meanwhile, I never got a meeting with anyone from the Bush White House, not even an aide. After the election, the industry-supported bankruptcy bill was back again, and it kept moving right along in Congress. Campaign money rolled in. MBNA, the country’s biggest credit card lender, through its executives and PACs and “soft money” pledges, had been the single biggest contributor to President Bush’s first campaign, and in 2004 they stepped up to the plate again. And all over the country, middle-class families were still getting hammered.

Dr. Phil

Once
The Two-Income Trap
started to get some mainstream attention, I decided to take one more swing at sounding the alarm and trying to get the book’s ideas into wider circulation. When Dr. Phil McGraw agreed to have Amelia and me come on the show, I wasn’t sure what we’d be in for, but I thought I should give it a shot.

At the studio, people rushed about, talking, carrying clothes, calling out to aides. Amelia and I were tucked into a tiny room with a huge mirror and enough lights around the mirror to cover the landing strip at the Los Angeles airport. Someone came by to pronounce Amelia’s shirt “the wrong color” and thrust a new blouse into her hands with the command “Change!” She never got her original shirt back. We figure it’s probably still hanging in some wardrobe room somewhere.

About an hour later, a young woman knocked on the door and said urgently, “You’re up! You’re up! Let’s go! Let’s go!” She clapped her hands at us, and I wondered if she said everything in twos.

She brought us backstage, where it was freezing cold. I could hear loud music and an even louder announcer revving up the crowd. “Do you
love
it here?
Do you?
” someone shouted into the microphone.

A few minutes later, I joined the audience and took a seat in the front row next to Amelia. When Dr. Phil came onstage, I jumped to my feet and clapped wildly along with everyone else.

Dr. Phil interviewed a couple who had gotten in financial trouble and had tried to bail themselves out by cashing out their home equity. Eventually, Dr. Phil called my name and asked what I thought about their decision. Suddenly everyone shifted toward me, the camera bore down, and I knew this was it—the chance to say something useful to a big audience. My heart started banging in my chest and I felt blinded by the lights, but I already knew what I wanted to say. I said that taking out a second mortgage to pay a debt was like “playing roulette with your house” and that it was “the single worst move that homeowners can make.”

Dr. Phil pressed on. What about the push from the giant banks to get people to consolidate their bills through a second mortgage? I answered:

Dr. Phil, that’s how they make money. They make money by getting families like this to get into debt.
They
don’t make money unless
you
borrow more money. The whole idea is to tell you how smart, clever, and safe you’d be if you took your house and placed it on the roulette wheel.

A moment later, the camera swung back to the stage and the audience once again stared intently at Dr. Phil and the couple on the stage. I blinked.

As the show went on, I got to say a few more things, but the gist was the same. Although piling on debt might seem to be a solution to a family’s financial problems, too often it led to disaster.

As Amelia and I stood up at the end of the show, I couldn’t help smiling. I had been working on family economic issues for more than twenty years. Year in and year out, I’d been fighting as hard as I could—doing research, writing papers, giving interviews. I’d even tried to advise presidential candidates (or at least I’d tried to advise the advisors to presidential candidates). But by spending a few minutes talking to that family on Dr. Phil’s show—and to about six million other people who were looking on—I might have done more good than in an entire year as a professor. And although I was still fighting hard in the battles over bankruptcy laws in Washington, it was pretty clear that we were losing the war. Families were getting sucked down every day, and too many people in Washington were fighting on the side of the rich and powerful. But now I had just given the best advice I could to six million people. Maybe
that
was a better way to make a difference.