Elizabeth Warren’s September Smackdown in The Wall Street Journal

Fat Sam

Harvard Law Professor Elizabeth Warren, who is a new member to the Obama team,  received a tongue-lashing in the Wall Street Journal on September 30th.  She is also the acclaimed author of “The Two Income Trap” which delivers a message which is critical to restoring the power of families in America.

I am sympathetic to author and Law Professor Zywicki’s criticisms of Warren as we come from the same libertarian George Mason cloth.  And, I do understand that he is mostly attacking her questionable data analysis.  I agree with him that this is troubling and the Senate should have had the opportunity to address these issues with Warren before Obama appointed her to lead an extremely powerful new agency named the Consumer Financial Protection Bureau which as Zywicki says has the power to

regulate or ban almost every consumer credit product in the country, yet it is beyond Congress’s power of the purse because its budget is guaranteed as a percentage of the Fed’s annual revenues.

She does avoid a discussion about the need for lowering taxes despite her presentation of Tax Foundation data showing that taxes increased significantly during the relevant time period.  Instead, in the second half of the book which is committed to her policy solutions, she discusses remedies like bank regulation, the institution of usury laws, etc which should be completely ignored.

Taxes have been eroding family wealth for a good period of time and not just for the so-called middle class.  A Univ of Chicago Law Prof recently drove this point home when he posted his family’s finances on his blog to show that he is hardly making it despite a combined two-parent income of over $250k.  Liberals immediately jumped all over him as an elite snob who can’t possibly relate to his poorer compatriots.  However, he was making a powerful point that The American Dream is becoming The American Nightmare.

We are clearly not as well off as we should be with student loans, credit card balances and mortgages consuming the typical young family.  If you assume the Chicago Professor and his presumable Ivy League wife had student loans from Ivys, that alone may be enough to break the bank for them.  So-called richer white collar people in America with jobs are typically just broke at a higher level than their poorer brethren with more expensive student loans, houses, cars and clothes.

It is really only those who own their own businesses that are “wealthy” but even that dream is being eroded with financial regulation, the federal health care bill and the expiration of the Bush tax cuts.  For a family of four making $150k, for example, your tax bill will be going up by $4510 (see The Tax Foundation calculator to find your own burden).  Who has an extra $4510 laying under their mattress during The Great Recession ?  Shouldn’t that $4,510 be put into a savings account instead of Uncle Sam’s account ?

Despite her wreckless policy solutions and the data landmines she has laid, Elizabeth Warren does deserve a huge pat on the back for making an obvious point which most people continue to ignore: the two-parent working household does not work.  I hope social conservatives are not blinded by her liberal public policy solutions and chumminess with Obama and his liberal friends.  Instead, I hope conservatives will keep in mind that there is an opportunity for bipartisanship as she identifies a problem that is at the heart of the social conservative agenda:  the family.

Two Income Trap and 50-Percent Money

Spot-on book by Elizabeth Warren and her daughter about why families aren’t making it on two incomes.  If you’re reading this blog, you’re probably aware of some of the reasons, some of which lead to the nonsensical result of earning less than your outlays.  Failure to accurately account for taxes, a second car and gas, work clothing, etc. could have a working mom earning McDonalds wages after everything is netted out.

My husband, who is a tax policy economist, recently figured out that everything we earn for the rest of the year is 50% money.  What does that mean ?  Well, we’re in the child tax credit phaseout and have reached the level of income where our marginal rate is now 50% such that we keep 50% of everything we earn for the rest of the year and send the other 50% to our friends in Washington.  I’m no great economist but I did learn about the trade off between labor and leisure and this recent nugget has me thinking pina coladas.  Since we don’t have 9 to 5 jobs but instead are business owners who have to drum up our own business, I am feeling quite tired and think I’ll take a nap and tell Washington to shove it…..they’re not getting my 50% money.

Working Women and Competition for Daycare

Sunshine Day Care

I’ve been wanting to set up a blog for quite awhile and finally got around to it. So, I have a couple of articles that have been piling up that I want to write about. They are a couple months old but the content isn’t time-sensitive. The first article I’m writing about is from the 6/9/2010 issue of the Wall Street Journal by Sue Shellenbarger.

With more women than ever in the workforce, many of the country’s roughly 1,000 nationally accredited child-care centers are full to capacity.

So, do we need more day care centers ? Fewer children ? Or more moms to stay home with their children ? It gets worse:

Jessica (for privacy I didn’t add last name) put her baby-to-be on a child care wait list last August, as soon as she got the results of her home pregnancy test. The child care center director got the good news even before the baby’s grandparents. Now, one year later, Jessica’s baby has been promised a coveted slot in August in the infant care room at Primrose School in (for privacy) Somewhere, Colorado.

Granted the point of the article is to offer a glimpse into how difficult it is to find open slots for childcare, especially at the best child care centers.  The author’s does not debate whether one should perhaps give some thought about staying home with her child instead of forking out $1,500 to $2,000 a month for someone else to care for her precious baby. That’s my job.

I lived in Washington, D.C. when our first child was born and was faced with the same considerations that all working women who become pregnant face:

a) How will I afford daycare ? Why do I want to sacrifice to make a monthly payment, equivalent to a mortgage payment in some areas, to a daycare center to care for a child whose best nurturer is me ?
b) How can I deal with the emotional turmoil of parting from my baby ? Biologically, your child isn’t supposed to be taken from you at 6 weeks. (6 weeks is the usual length of maternity leave and when infants are accepted into daycare).
c) What’s the point of having children if I won’t be there to answer the silly and not-so-silly questions they have throughout the day, to impart lessons of right and wrong, see their first step, smile, etc.

When pregnant with my first, I constantly weighed the pros and cons of working. I had just finished my doctorate in economics and was kind of excited about working in my field and even more excited about earning money. I had worked the first couple years of Ph.D. but the last couple of years, I had a fellowship which paid for classes and little else. So, having some real money was an exciting concept. But, through the tears and being pulled in the career direction and then the mommy direction, I eventually ended up knowing that I would “mostly” be a stay-at-home mom.

Needless to say, everything wasn’t sorted out when our first was born. We really needed my income given our student loan debt and the foregone income sacrificed to pursue graduate studies. I kept interviewing and turning down job offers for the first two years of our first son’s life. When I’d get a job offer, it was like being sawed in half as we desperately needed the money as we were going into debt to have me stay home. However, my husband and I always ended up plowing ahead. It came down to not being able to live with myself for turning our beloved little person over to strangers. We didn’t have any family around and, even if we did, our parents wouldn’t be interested in caring for the kids.

My husband and I met in Ph.D. so it wasn’t like we could have made the decision for me to be home before we had taken on undergraduate or graduate studies. It was very messy and took some time for us to back out of the Two Income Trap (and we’re still doing it). We never wavered on the one thing that was most important to us: for me to be at home to teach the kids. All our choices aligned with this commitment and financially we were slowly able to make that happen.

As I ramble on through this blog, I will share how we did this.

See the entire link for the WSJ article here.  Note that you might have to be a WSJ subscriber to access it.