The American Middle Class as Victim

S enator Elizabeth Warren, foundering in the Democratic primary, is returning to the theme that made her famous: her moralizing account of personal bankruptcy.

As an academic, Warren did research on personal bankruptcy in the United States. “Our research ended up showing that most of these families weren’t reckless or irresponsible,” she writes, “they were just getting squeezed by an economy that forced them to take on more debt and more risk to cling to their place in America’s middle class.” That is a peculiar claim. Borrowing money that you cannot repay in order to finance personal consumption that you cannot afford is precisely the sort of thing one might wish to indicate with the words “reckless and irresponsible.” To claim that this is the result of “getting squeezed by the economy” is a way of giving your morality play a villain without making any specific person feel bad.

That is one of the things about Warren that appeal to such unlikely admirers as Tucker Carlson: The neo-socialist Left and the neo-nationalist Right are united in their conviction that the American middle class is a victim of forces beyond the control of its members, who therefore must be considered immune to any sort of moral judgment for the state of their lives, their families, or their communities.

The 21st-century tale of college-educated woe in these United States is a strange one.

In the December issue of Harper’s, Wes Enzinna shares his preposterous personal odyssey under the headline “Down and Out in Silicon Valley.” Housing is indeed absurdly expensive in the Bay Area, for reasons that are largely political rather than organic, but Enzinna’s story, colorful as it is (he took up residence in a shack with no plumbing), tells us nothing useful about that. Early in his career, Enzinna moved to work “at an investigative reporting magazine in San Francisco,” by which I assume he is politely indicating Mother Jones, the investigative-reporting magazine in San Francisco where his work has appeared. “My situation,” he writes, “was evidence of how distorted the Bay Area housing market had become, the brutality inflicted upon the poor now trickling up to everyone but the super-rich.”

His situation was no such thing.

For personal reasons, he had decided to keep paying rent and residential bills on an apartment in New York City, which, like San Francisco and environs, is very expensive. Enzinna is a 2010 graduate of the graduate journalism program at Berkeley, and his problem is that while working as an early-career magazine journalist he could not afford to rent homes in New York City and the Bay Area simultaneously.

Enzinna describes himself as “proudly lumpenproletariat,” but that’s an upwardly-mobile-white-guy-with-a-master’s-degree problem. There are serious problems with housing in California and in many other places in the United States, particularly those in which (forgive me for noticing) Mother Jones–reading progressives enjoy meaningful political power. These problems are felt very intensely by the Spanish-speaking men with white pickup trucks who do so much of the actual work in California. But Enzinna’s problem wasn’t the housing market — it was that he made a dumb decision in trying to maintain two households in two of the most expensive places in the United States on an income that was merely ordinary. Maybe he had a good reason for that. But the best of intentions do not change the math or the fact that he put himself at the mercy of that math intentionally.

Our policy debates tend to reflect the interests and obsessions of the policymaking classes, who are relatively educated and affluent and disproportionately likely to be employed at magazines based in expensive coastal metros, which is why we spend so much time worrying about things such as college loans and the admissions policies at elite universities. It is no surprise, then, that Senator Warren is revisiting personal bankruptcy with an eye toward making Chapter 7 filings more accessible to relatively high-income people. Chapter 7 bankruptcies differ from Chapter 13 bankruptcies in one important way: They do not require debtors to enter into repayment plans. Chapter 7 filers simply give up whatever assets they have that are not legally excluded from bankruptcy forfeiture, and their debts are discharged; Chapter 13 filers have to pay back some of their debts from future earnings. For obvious reasons, Chapter 7 is restricted to relatively low-income people; those with incomes above the median in their state are obliged to file under Chapter 13. Senator Warren calls this “an onerous and complicated means test.” Of course it is a means test: We provide certain subsidies and benefits to poor people because they are poor, and we do not provide the same subsidies and benefits to high-income people, who might reasonably be expected to take a little more responsibility for their debts.

The politics here are obvious enough: This mainly is an attempt to wrongfoot Joe Biden. Senator Warren is a shill for the medical-device manufacturers clustered around Boston (the tax on them in the grievously misnamed Affordable Care Act is one of the few redistributive levies that Warren doesn’t love), and Senator Biden was a shill for the credit-card companies that are mostly based in his native Delaware. As an added benefit, it gives Warren an opportunity to remind Democratic voters that she is smarter than Bernie Sanders, the Vermont socialist who rails against “allah-garky” in a way that is generally vague and fuzzy in contrast to Warren’s shtick of putting her ludicrous BS into bullet-point form.

In California, decades’ worth of bad public-policy decisions have made it more difficult and less profitable to build housing oriented toward the middle and low end of the market. (There isn’t any iron law of economics establishing that it is more profitable to work the high end of the market — the guy who runs Taco Bell makes a lot more money than Jean-Georges Vongerichten does.) The same holds true of financial products such as credit and insurance. By making it less profitable and less attractive to serve lower-income and higher-risk consumers, Warren et al. ensure that those households have less access to credit and other financial services and that they pay more for it. Risk comes with a price, and making it more difficult to recover debts adds to the risk of lending, which will add to the price of credit.

One need not think very highly of credit-card companies to understand how the market operates. Moralistic accounts of bankruptcy filers being victimized by . . . people who lent them money when they asked for it . . . are useless as guides to reform — and there is much in American consumer finance that is in need of reform.

But reform in what direction? If you want more housing for low- and middle-income people, then you need to allow developers to build it, which means creating a policy environment that makes it profitable for them to do so. If you want more affordable and more accessible financial services for people other than those with high incomes and substantial wealth, then you should make it easier to serve those markets rather than more difficult.

The problem for Warren (who should know better) and others like her (who often don’t) is that there is a lot more juice in the moralistic account of economic problems than in the economic account of economic problems. To make things worse, the moralistic account offered by Senator Warren is untrue. Americans are not incapable of being anything other than passive victims of forces beyond their control. They have moral agency, and they make choices — sometimes, they make bad choices for bad reasons. If we are to have beneficial and effective policies — “providing for those common hazards of life against which few can make adequate provision,” as F. A. Hayek put it — then we have to begin with accurate and intelligent premises, not moralistic fairytales and just-so stories and politically expedient flattery.

Warren should do better. Harper’s, too.