Sunday, May 18, 2014

Sean Mcelwee — How Thomas Piketty and Elizabeth Warren demolished the conventional wisdom on debt

American households falling in the bottom third of income growth from 1999 to 2007 accounted for a full half of the decline in the overall saving rate over the same period,according to the IMF. Meanwhile, a 2012 Demos study finds that “40 percent of households used credit cards to pay for basic living expenses such as rent or mortgage bills, groceries, utilities, or insurance, in the past year because they did not have enough money in their checking or savings account.” Another 2012 study finds that “regions or periods with higher inequality are characterized not only by a more unequal distribution of saving rates but also by lower saving rates for most of the income distribution.”... 
In a recent study, Amy Traub, a senior policy analyst at Demos, sought to test whether those with credit card debt were the profligates portrayed by popular culture. She used a national survey of 1,997 households to create two groups indistinguishable in terms of income, race, age, marital status and rate of homeownership. The only difference? One group had credit card debt, the other group didn’t. Traub finds that the households without debt had more assets, and fell back on them when dealing with unexpected expenses. She finds “little evidence” that “households with credit card debt are less responsible in their spending habits than households that do not have accumulated debt.” Instead, she finds that unemployment, children, lack of education, lack of health insurance and negative home equity correlate strongly with high levels of debt.

In their famous book on the subject, “The Two-Income Trap,” Elizabeth Warren and Amelia Warren Tyagi argue that slowing income growth, not overspending, is what’s driving families into debt.
Salon
How Thomas Piketty and Elizabeth Warren demolished the conventional wisdom on debt
Sean Mcelwee

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