In the absence of a good understanding of what is going on, people frequently disparage those who are suffering. There are two common reactions to The Atlantic’s May cover story. On the left there seems to be a lot of, “Boohoo, a rich person who spends too much. We have real poverty to worry about.” On the right there was more of, “He made bad decisions and blames the system, our glorious system, for it!”
Yes, it’s not real poverty, and, yes, Gabler made bad decisions. But Gabler’s straits, and the straits of millions like him, demonstrate gross dysfunction at the core of the American system. If millions of people with healthy incomes are in Gabler’s situation, something is very wrong.
What is that something that is preventing people from turning their earnings into prosperity? Many have pointed to wage stagnation as the culprit, arguing that of course Americans can’t get ahead—they don’t have enough money to get ahead! And making more money would certainly help Americans afford better quality goods, housing, services, and so on—all of which are incredibly important. But there is little reason to think that higher wages would enable families to build up a financial cushion that would allow them to sleep easy at night. In fact, even the very richest largely do not put away what economists would consider a healthy retirement savings. For the vast majority of people, higher wages do not seem to translate into financial security.
So it stands to reason that the problem—insofar as it is in any real sense a definable, single problem—is driven by something that is happening on the spending side of the equation. Why can’t people live below their means, save up some money, and kick up their feet?
The place to start is by looking at what they are spending their money—and particularly their loans—on. The biggest expenditure? Housing, by far. (Transportation is next, but a good portion of that—gas—is in some ways a housing cost as well, since it’s a function of one’s commute.) And the biggest sources of debt? Housing and education. The average loan burdens for mortgages and student loans dwarf auto loans or credit-card debt, the other major types of debt that Americans tend to carry.
Housing and education appear to be two distinct categories of spending, but for many families they are one and the same: For the most part, where a family lives determines where their kids go to school, and, as a result, where schools are better, houses are more costly. This is both cause and effect: Where houses are expensive, the tax base is bigger and schools have better resources, and where schools are better, there is more demand for housing. Zoning restrictions exacerbate this dynamic, because many rich municipalities with excellent public schools oppose the density that would allow more people to access their schools, which in turn drives housing prices up further. So in a sense, for many people, housing debt is education debt.