Considering Elizabeth Warren, the Scholar

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(Part one of a two-part series)

The progressives seem to have made Elizabeth Warren their cause-du-jour.  I have a long and complicated history with Elizabeth Warren, so allow me a moment to offer my long and complicated thoughts on her.  Really long.  So long that I had to break it into two parts--scholarship and public life--in order to prevent the nausea, daytime sleepyness, and intracranial bleeding that might otherwise result.  Consider yourselves warned.

I first encountered Elizabeth Warren in the early part of the decade, when I read her book, The Two Income Trap.  The thesis is innovative and, I think, at least partly correct:  that in many ways, two income families have made households less financially stable, not more so.  Among higher income families, much of the extra income has simply been poured into a bidding war with other higher income families for homes in good school districts.  Among lower income families, much of the extra income has gone to replacing home production with market production:  convenience meals, work clothes, second cars, child care, and so forth.

Because the extra income is being fully consumed, the result is that if one partner loses their job, the family is not more insulated from economic shock, but less so.  In the 1950s, if Dad lost his job, Mom could pick up extra work to make up at least some of the loss.  In the Mean Teens, Mom's already got a full time job.

But while I found the thesis compelling, there were some problems with the book.  The first is that Warren simply fails to grapple with what her thesis suggests about the net benefits of the two-earner family.  Admittedly, I don't quite know what to say either, but at least I can acknowledge that it's a pretty powerful problem for the current family model; Warren kind of waves her hands and mumbles about social programs and more supportive work environments.  There is no possible solution outside of a more left-wing government.

But the deeper problem is that some of her evidence doesn't really support her thesis, and can be made to appear to support her thesis only by making some very weird choices about what metrics to use.


There are a lot of small points (and it's been a long time since I read the book), but I'll take just one, which I blogged some years ago.  In order to show that the extra income from two income families is going to bidding up the prices of housing (rather than, say, buying better housing), Warren argues that housing consumption hasn't actually increased much in the last few decades:  by less than a room per house.

But since the starting size was five rooms per house, that's actually a rather large increase:  twenty percent more rooms.  Moreover, at the same time that housing sizes were rising, divorce, later marriage, and fewer children were causing the average household size to drop rather precipitously, from about 3.3 to about 2.6 persons.  As I noted in that long-ago blog post, that means that the number of rooms per household has gone up by nearly a whole room per person.  That's actually quite a lot of extra housing consumption.

Moreover, we know that the square footage of new homes has increased dramatically since 1960--nearly doubled, by most estimates I've seen.  That even as the number of people has fallen.  Again, this is a lot of extra housing consumption.

These are obvious issues she should have dealt with.  (I'll add that Ed Glaeser's work indicates a strong role for zoning and other sorts of NIMBYism, but it wasn't particularly famous at the time, so there's no reason she should have known about it.)  But they considerably weaken her thesis, and she doesn't have a good answer for them.

That's a pattern I see over and over in her work.  In her (in)famous paper on medical bankruptcies in 2001, Warren and her co-authors defined anyone with $1000 worth of medical bills as having a medical bankruptcy, and used that figure to imply that rising medical bills were pushing people over the financial edge.  Now maybe they are, but you sure couldn't prove it with that metric.  I hope to hell that no lawyer (Warren is a law professor) would advise a client with no debt but $1,000 worth of medical bills to declare bankruptcy, because doing so would be malpractice*.

 If $1,000 worth of medical bills can push you into bankruptcy, you already had a major problem, either on the spending side or on the income side.  There is simply no reason for using this metric as a proxy for anything.  As a side note, this would make the bankruptcy of Edmund Andrews' wife a "medical bankruptcy", since she had thousands in bills to some sort of cosmetic practice (I believe a dermatologist).

I blogged about her latest paper here.  This one also looked at medical bankruptcies, this time in 2007, and was supposed to improve on the problems of the previous paper.  These were the conclusions they came to:

In 2007, before the current economic downturn, an American family filed for bankruptcy in the aftermath of illness every 90 seconds; three quarters of them were insured.

Since 2001, the proportion of all bankruptcies attributable to medical problems has increased by 50%.  Nearly two thirds of all bankruptcies are now linked to an illness.

How did medical problems propel so many middle-class, insured Americans toward bankruptcy?  For 92% of the medically bankrupt, high medical bills directly contributed to their bankruptcy.  Many families with continuous coverage found themselves under-insured, responsible for thousands of dollars in out-of-pocket costs.  Others had private coverage but lost it when they became too sick to work.  Nationally, a quarter of firms cancel coverage immediately when an employee suffers a disabling illness; another quarter do so within a year.  Income loss due to illness also was common, but nearly always coupled with high medical bills.

The present study and our 2001 analysis provide the only data on large cohorts of bankruptcy filers derived from in-depth surveys.  As with any survey, we depend on respondents candor.  However, we also had independent checks--from court records filed under penalty of perjury--on many responses. Because questionnaires and court records were available for our entire sample, we used them for most calculations.  The lowest plausible estimate of the medical bankruptcy rate from those sources is 44.4%--the proportion who directly said that either illness or medical bills were a reason for bankruptcy.  But many others gave reasons such as "aggressive collection efforts" or "lost income due to illness and had large medical debts.  Indeed, detailed telephone interview data available for 1032 debtors revealed an even higher rate of medical bankruptcy than our 62.1% estimate--at least 68.8% of all filers.

. . . Teasing causation from cross-sectional data is challenging.  Multiple factors push families into bankruptcy. Yet, our data clearly establish that illness and medical bills play an important role in a large and growing proportion of bankruptcies.

This paper was deeply, deeply flawed, and all in ways that suggested--as this discussion does--that rising medical bills were causing an increase in bankruptcies.  I'll try to hit the highlights:

1.  I'm pretty sure that the metric they used this time around--10% of income or $5,000 would still make Patty Barreiro's bankruptcy a "medical bankruptcy", something which has never been asserted by anyone.  The proximate cause of that bankruptcy was (according to Andrews) a lawsuit and an income crunch; the medical bills were simply added in.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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