The following article is an except form pages 267-272 of my book The Conscience of a Young Conservative. If you enjoy, free PDF copies are available through, and print copies are available on Amazon. 

Warren and Economics

Co-authored along with her daughter, Warren’s book The Two Income Trap documents how since 1970, the rise of the two-worker household has led to unpredicted results. These results include that fact that the dual-income household not only has less discretionary income than the one-income household did decades prior, but that bankruptcy is also on the rise among middle class households.

Warren also gave a talk at UC Berkeley titled “The Coming Collapse of the Middle Class” which is based on her book. One of Warren’s observations about a certain problem facing the economy is spot on: personal savings is declining. Figuring out why savings are declining is what she aims to determine. As she discovers, people are spending less as a proportion of their total income on clothes, food, appliances, and cars today than a generation ago. She’s economically literate enough to know that the causes of this are many, including lower cost imported clothes, big box stores for food and appliances, and declines in repair costs for cars. Warren has an epiphany when she discovers one area where spending increased massively: housing. From 1970 to 2004, spending on housing increased 76%.[1] There is no problem with any of the data that Warren has presented to us so far, but she’s at a loss as to why people have been spending more on housing.

In her UC Berkeley talk, Warren emphasizes that the increase in housing costs isn’t due to an increase in the size of houses, since the median home only grew slightly in size, from 5.8 rooms to 6.1 rooms. This sounds like a minor increase, except that during Warren’s timeframe (1970-2004) the average home’s size increased from 1,400 square feet to 2,330 square feet.[2] In her book Warren actually acknowledges that the average home size as measured in square feet has increased, but claims that the “overwhelming majority of middle-income families don’t live in one of those spacious new homes.”[3]

She bases her statement on the fact that there has been a 50% rise in people living in older homes over the past generation. This is probably due to the fact that as time progresses, homes tend to get older. The 50% measurement here isn’t specific enough from which to base a conclusion. If 1 in 10 people lived in old homes in previous generations, compared to 1.5 in 10 people for the current generation, she arrives at her 50% figure, but this doesn’t prove that most people are downgrading.

In addition to the increasing size of homes, another reason we have seen an incredible 76% increase in spending on housing is because Warren’s measurement ends right before the peak of the housing bubble. With home size and inflation adjusted for, there was a 40% increase in real housing price per square foot from 1970-2004.[4] But if we go back to 2000, there was only a 19% increase in the price of housing per square foot since 1970.[5] If we look at 1996 prices, we see only a 3.7% increase in the price of housing per square foot since 1970.[6] Once again, this isn’t to say that a home in 1996 only cost 3.7% more than a home in 1970, but that a home cost only 3.7% more in 1996 after you adjust for increases in inflation and home size.

Her theory behind the rising costs is that it is the fault of the education system. She concludes that suburban areas with good school districts attract more families, which lead to a bidding war on housing. It’s undeniable that good nearby schools increase housing values, especially since this sort of environment is also accompanied by high income earners and a low crime area. But the extent to which this is occurring is certainly overstated since the housing bubble was primarily responsible for the cost increases that we saw. The positive side to Warren’s talk is that her solution to this problem is school vouchers,[7] the same approach that I outlined in Chapter 3.

According to Warren’s calculations, other big increases in expenditures facing the middle class are taxes (+25%) and health insurance (+74%).[8] The reason for the increase in taxes is that the added income from a second worker pushes a family’s total income into a higher tax bracket. Todd Zywicki, a blogger for The Volokh Conspiracy showed that Warren underestimated the increase in taxes – the real increase is actually 140%.[9]

When measured as a percentage of total family income, taxes and child care are to blame for the decline in discretionary income since 1970. The typical single-worker household in the early 1970s spent 3% of its income on health insurance,[10] 14% on the mortgage, and 13% on automobile expenses. The two-worker household of the early 2000s spent 2% on health insurance, 13% on the mortgage, and 12% on cars. But the difference between the early 1970s and early 2000s households is that taxes increased dramatically, from 24% of income to 34% of income, and child care became a new expense which now consumes 14% of income.[11]

The Shrinking Safety Net

Another theme to Warren’s book is that the safety net is shrinking.[12] When most people talk about a shrinking safety net they’re referring to government welfare spending, but most of this type of talk is just hype. Welfare spending as a percentage of GDP was 2.15% in 1970 when Warren’s measurements began, and 3.44% when they ended.[13] Not once during the 1970-2004 period did welfare spending fall below what it was in 1970.

But the safety net Warren is talking about isn’t government-based, it’s the safety net provided by a non-working mother who can care for her children and find a job if her husband loses his. The stay at home mom also negates the expense of child care, and incurs less of the of the other expenses associated with a job (gas, food/lunches outside the home, etc.).

There is a tradeoff that occurs when a second parent enters the workforce, and there seems to be no real way around it. Warren looks into the possibility of government-funded day care, but explains that “every dollar spent to subsidize the price of day care frees up a dollar for the two-income family to spend in the bidding wars for housing, tuition, and everything else that families are competing for”.[14] Even if Warren’s bidding hypothesis is faulty, the government already subsidizes day care for low income earners (which, by the way, doesn’t aid the middle class two-earner household). In 1997, the Cato Institute estimated that around 40% of day care costs were funded by government at the local, state, and federal levels.[15]

Tackling the problem of child care costs is better solved by altering tax incentives than by expanding the role of government in the matter. Expanding the Child and Dependent Care Credit would be the simplest way to do this. The maximum tax credit that most families can receive is $1,050 for one child, or $2,100 for two, but the credit phases out as one goes up the income ladder. For example, a household with $50,000 a year in earnings is only eligible for a credit of $600.[16]

The Rise in Bankruptcy

I have criticized Warren criticized in Chapter Two when I showed that a study she took part in on the topic of medical bankruptcy was poorly constructed. The data presented in The Two Income Trap is an attempt to explain the rise in bankruptcy filings, but as a professor of bankruptcy law, Warren ought to know better. If anything, filings for bankruptcy correlate most heavily with how appealing the law is to potential filers. When bankruptcy law was altered in 1978 in ways that made it more appealing, there was a marked increase in bankruptcy filings the next two years before leveling off.[17] Bankruptcies then shot up following additional modifications to the Bankruptcy Code, which lasted until 2005.[18] By 2005, there were 7.2 times as many bankruptcies as in 1978.[19] When bankruptcy law was modified in 2005 to make filing for bankruptcy more difficult, bankruptcies began to decline.[20] Obviously, it seems unlikely that there was such a striking increase in bankruptcies due to any economic problems in the 80s and 90s, since this was a period of major economic growth.[21]

[1] Warren, Elizabeth. “The Coming Collapse of the Middle Class. Presented at UC Berkeley on June 11th 2007.

[2] “Downsize Your Home To Downsize Expenses.” Investopedia, 25 Feb. 2009. <>.

[3] Warren, Elizabeth, and Amelia Warren Tyagi. “The Two-income Trap: Why Middle-class Parents Are Going Broke.” (New York, NY: Basic, 2004), p. 21.

[4] A spreadsheet sourcing inflation adjusted home prices from 1970- 2011 is available at:

<>. After adjusting for inflation and household size, real home prices averaged $145,983 in 1970, and $242,975 in 2004.

[5] 145,983 % 179,208

[6] 145,983 % 151,513

[7] Warren, “Two Income Trap,” pp. 34-35.

[8] Warren at UC Berkeley.

[9] Zywicki, Todd. “Christopher Caldwell Falls for the Two-Income Trap.” The Volokh Conspiracy, 28 July 2011. <>.

[10] Health insurance remained so low as a percentage of income despite soaring costs because healthcare is received in the form of benefits for most people, instead of being paid for directly in cash.

[11] Zywicki, Todd. “Evaluating The Two-Income Trap Hypothesis.” The Volokh Conspiracy, 6 Aug. 2007. <>.

[12] Warren, “Two Income Trap,” pp. 55-70.

[13] “Welfare Spending Chart” UsGovernmentSpending, <>.

[14] Warren, “Two Income Trap,” pp. 39-40.

[15] Olsen, Darcy. “The Advancing Nanny State: Why the Government Should Stay Out of Child Care.” The Cato Institute, 23 Oct. 2007. <>.

[16] Faulhaber, Lilian V. “How the I.R.S. Hurts Mothers.” The New York Times, 3 Apr. 2013. <>.

[17] Murray, “Coming Apart,” pp. 197.

[18] Ibid.

[19] Ibid.

[20] Ibid., p. 196.

[21] Ibid.