Half Changed World

I spent much of the day immersed in the details of the recovery legislation that's being introduced in the House.  And all I can say is, wow, we're really in a whole new world.

I know, there's still a long way to go between this preliminary bill being introduced and something being signed into law.  (I watched my schoolhouse rock, you know.)  But, for someone who has spent much of my life fighting for incredibly modest incremental improvements, it's just mindboggling to read a bill that in one stroke would do so much.

Just to give one example: you might remember that last fall, I was excited that the Senate tax bill would lower the threshold at which families begin to qualify for the child tax credit to $8,500.  Well, this bill would lower the threshold all the way to $0.  If a family with a child earns $1, they would get a $0.15 tax credit.

This is just totally outside of my zone of experience.  The only time in my life when Democrats have controlled both the Presidency and both houses of Congress was 1993-1994.  And Clinton was so convinced that he needed to bring the budget deficit under control that he famously complained that they had become "Eisenhower Republicans." 

So, wow.

In the comments on yesterday’s post, Sue asked about the claim "that ACORN had been part of some issues with the subprime mortage crisis."   The short answer is no, not really.  But the full answer is important, so I’m giving it its own post.

Promoting homeownership for low-income families is certainly one of the things that ACORN has worked on over the years.  They’ve done this both through legislative work, primarily the passage of the Community Reinvestment Act (CRA), and through direct work with families.  Let’s look at both of these.

CRA was a response to many banks’ historic practice of redlining — of refusing to make ANY  home loans within certain areas, defined both on the basis of income and of race.  I’m not 100 percent clear on the exact requirements, but the intent was to force banks that wanted things from the government (mostly approvals of mergers and acquisitions) to meet standards with respect to the number (or share?) of loans made in low-income and underserved communities.  And from 1977, when it was passed, to the early 2000s, it caused a slow and steady increase in such loans.

Banks objected to the CRA, because they believed that they couldn’t possibly make money by issuing home loans in low-income areas.  But CRA forced them to look at their criteria and do their best to distinguish between moderate-income people who were bad credit risks and ones who were actually pretty good.  This is where the second part of ACORN’s work came in.   They did a lot of financial education for their members, and negotiated with deals with banks where they’d provide reduced points, or other lower fees, for people who completed these courses.  The banks benefited because it helped them make loans that met their CRA requirements, and because the people who were willing to complete the courses were in fact better risks than similar people who didn’t.  ACORN benefited because these courses were a way to recruit members.  And the low-income people benefited, because they were able to buy homes.

So, what happened in the 2000s?  For one thing, people were convinced that home prices were only going to go up.  So it didn’t really matter if people were bad credit risks, because if they defaulted, the banks thought they’d get houses that were worth more than they had loaned.  For another thing, banks had come up with all these fancy ways to resell the mortgages they made, so they believed that they had made the risk go away.  Suddenly, there was a ton of money to be made making loans to poor people.  And lots of institutions rushed in — including things that weren’t "banks" and so weren’t subject to CRA.

My sense is that ACORN had pretty mixed feelings about this.  On the plus side, lots of people were able to buy houses.  But on the negative side, they could see that a lot of people were being given crappy high cost loans.  But as a little nonprofit — and one that made people jump through hoops before helping them get loans — they had a lot of trouble competing with the sleazy mortgage brokers who were promising people easy loans and low monthly payments.

So, in the sense that banks experience under CRA taught them that it was possible to make loans to low-income people without losing money, I suppose you could argue that it "contributed" to the subprime mess.  But that’s like saying if agriculture had never been invented, we wouldn’t have to worry about the spread of obesity.

But don’t take my word for it.  Here’s Ellen Seidman’s explanation of why CRA isn’t the cause of the subprime mess.  She ran the Office of Thrift Supervision under the Clinton Administration, among other things.

This year, the theme for Blog Action Day is Poverty.  Check it out.

Today’s the day that the Census Bureau issued the annual report on poverty, income, and health insurance.  The year-over-year changes from 2006 to 2007 were pretty modest — a slight growth in median family income, no statistical change in the overall poverty rate.

But the big story is how little most people benefited from the economic growth of the Bush years — as my colleagues at EPI point out,  median income is still not back up to where it was in 2000.  And I don’t think there’s anyone who doubts that the income and poverty numbers are going to look significantly worse in 2008.

Moreover, as Cheryl at DemoMemo notes, the only reason that median family income rose from 2006 to 2007 is because of the increased income of household heads aged 55 or older.  And that’s because they were more likely to be working.  That’s a good thing if it’s because they’re in better health and able to keep working, not such a good thing if it’s because they can’t afford to retire.

It’s also worth noting that the only reason the number of uninsured fell is because of the increase in coverage under public programs — Medicaid, SCHIP, and Medicare.  And that’s in spite of the Bush Administration’s attempts to prevent states from expanding coverage.

From the interviews with Rick Warren last weekend:

Obama:

Q. Okay. Taxes. This is a real simple
question. Define rich. I mean, give me a
number. Is it 50,000, 100,000,
200,000? Everybody keeps talking about
well, here we’re going to tax. How do
you define that?

A. You know, if you’ve got book sales of 25
million and you qualify —

Q. Okay. All right. I’m not asking about
me.

A. Look, here is how I think of it. Here is how I think of it and this is
reflected in my tax plan. If you are
making $150,000 a year or less as a family, then are you middle class or you
may be poor. But $150[000] down, you are
basically middle class. Obviously it
depends on region where you are living.

McCain:

Q Define rich. Everybody talks
about, you know, taxing the rich and — but not the poor, the middle class. At what point — give me a number, give me a
specific number, where do you move from middle class to rich? Is it 100,000, is it 50,000, 200,000? How does anybody know if we don’t know what
the standards are?

A Some of the richest people I’ve ever known
in my life are the most unhappy. I think
that rich is — should be defined by a home, a good job and education and the
ability to hand to our children a more prosperous and safer world than the one
that we inherited. I don’t want to take
any money from the rich. I want
everybody to get rich. I don’t believe
in class warfare or redistribution of the wealth. But I can tell you for example there are
small businessmen and women who are working 16 hours a day, seven days a week
that some people would classify as, quote, rich, my friends, who want to raise
their taxes and raise their payroll taxes…

So
I think if you’re just talking about income, how about five million. So — but seriously, I don’t think you can —
I don’t think, seriously that — the point is that I’m trying to make here
seriously — and I’m sure that comment will be distorted, but the point is —
the point is — the point is that we want to keep people’s taxes low and
increase revenues.

From a recent Pew survey:

2 percent described themselves as "upper class"

19 percent described themselves as "upper-middle class"

53 percent described themselves as "middle class"

19 percent described themselves as "lower-middle class"

6 percent described themselves as "lower class"

1 percent didn’t know or refused to answer.

I’ve got several long thoughtful posts that I’d like to write, but I’ve just been crashing before I get to my blogging time.  So go read the first article in the Washington Post’s series on low-wage workers, and then we can discuss.

Parke at US Food Policy poses the bold question: "Are high food prices unambiguously bad?"

The obvious problem with high food prices is that they mean that people on the edge eat less, and often poorer quality food.  Food is one of the most flexible part of the budget for most people — in the short term, you can’t reduce your rent, but you can skip a few meals, or see if the local food pantry can help you out.  There’s a study that shows that poor families eat less in cold winters, when utility bills are especially high.

So what’s good about high food prices?  Let’s start by thinking about the parallel question for gas.  I don’t think that high gas prices are unambiguously bad.  While I worry about the effect on low-income folks, especially in rural areas, I think high gas prices generally send the right economic signals: buy more fuel-efficient cars, use more carpools and mass transit, think about the costs of commuting when you decide where to live.  I’d like to see more of the cost of gas going into funding things like better mass transit, and less going to enrich oil companies and OPEC, but that’s a different issue.

So, is there something parallel for food?  Well, a big part of why food in the US is so cheap is that energy has been cheap.  When Michael Pollen says that the US food economy runs on corn, he could just as easily say it runs on oil — in the form of fuel for tractors and combines, in the form of fertilizer (which is largely made from petroleum), in the form of the fuel for the trucks that move the corn from farm to processing plant to grocery store.  So, it’s hard to imagine how food prices could stay as low as they’ve been in a world of higher energy prices.

It’s also likely that the relative costs of different kinds of food will change.  Bananas may be more expensive compared to apples, free range chicken may only cost twice as much as factory farmed chicken, rather than five times as much.  Some things that have been unsustainably cheap will be more expensive, and that might be a good thing.

But, none of this makes the basic problem of low-income people not being able to afford food go away.  The Center on Budget and Policy Priorities has been doing a lot of thinking about how to make sure that low-income households are protected in the context of climate change legislation that will increase energy costs — basically, the idea is that if the government auctions off all carbon permits, rather than assuming that companies are entitled to permits at the left that they currently pollute, it generates enough money to provide generous refunds to low and moderate income households.  I’m not sure what the food equivalent of that is.

Someone posted on my neighborhood listserve this morning, wondering "where are the cries for help for
the poor people of Iowa? Are they less deserving than the people of Louisiana?"  The question wasn’t from someone I know, and maybe I’m misjudging him, but my interpretation of the subtext was "all you people who were so dramatic about Katrina weren’t really worried about the people, but looking for a reason to beat up on Bush."

My impression is that the floods in the midwest have caused massive displacement, and overwhelming property loss, but that there’s been relatively little loss of life.  Kari Lyderson writes at Rooflines about the contrast between the disasters and suggests a few causes:

1. The local governments are far more functional.
2. Most people displaced in Iowa are staying with friends and family; in New Orleans, many of the affected had no social networks outside of the city.
3. Those from outside helping (FEMA, National Guard, volunteers)  have positive impressions of the people they are helping: "To put it bluntly, law enforcement and volunteers in Iowa were not
   afraid of or harboring deep-seated hatred toward the people they were
   trying to help."  I mentioned this idea to someone at work, and she commented that if Iowans break store windows, they’ll be seen as "getting needed supplies" not "looting."

That said, I do think it took a ridiculously long time for the East Coast media to figure out that this was a major story.  One of my colleagues is from Iowa, and she was stressing last week when the flooding started.  I hadn’t heard the news, so went online to look, and discovered that there wasn’t a single mention of the flooding on the Washington Post’s website at the time. 

Via Crunchy Granola, I found Boomerific’s postings about the flooding.

Some ways to help:

• Red Cross  — their disaster relief fund is empty and they’re borrowing to keep going.
• Union for Reform Judaism disaster relief.

In the discussion of Falling Behind, Jennifer commented that people compare themselves not just to what’s around them, but also to what their parents when they were little.

It made me wonder if part of the reason that young adults today — especially those from middle- to upper-class families — feel like they can’t keep up is that their parents waited until they were older, and more established, to have them.  So, you’ve got 20-somethings comparing their lives to what their 50-something or 60-something parents can afford now, rather than to what their parents were able to afford when they were in their twenties.  As Robert Frank suggests, maybe it’s a mistake to learn to tell the difference between good wine and Two Buck Chuck when you’re young, when you can’t afford the good stuff anyway.

Today’s book is The Missing Class, by Katherine Newman (author of Chutes and Ladders and No Shame in My Game) and Victor Tan Chen.  By "The Missing Class," the authors mean the not-quite-poor, those with family incomes between 100% and 200% of the poverty line.  And in particular, they focus on the experiences of several New York City families who fall in this category.  They explore the things that help them rise up (mostly getting a better paying job, or adding another wage-earner to the family, homeownership in one case) and the things that drag them down (predatory lending, poor health, legal troubles, divorce and separation).

Although Newman and Chen emphasize repeatedly that these families are not "poor," the book in fact covers much of the same ground as David Shipler’s The Working Poor, as many of those families also had income above the official federal poverty level, which pretty much everyone agrees is outdated.   If I had to pick one, I’d probably go with Shipler’s book, which covers a greater geographic and social range.  (200 percent of the poverty level is a lot poorer in NYC than in much of the country, and I’d also like to have learned about people who were slipping into the "missing class" from above, as well as those struggling to stay out of poverty.) One of the new contributions of the book is the discussion of No Child Left Behind,
and how the combination of overworked, time-deprived parents, mediocre
to lousy schools, and high stakes testing comes down hard on the
children of the working poor.

My understanding is that the reason Newman and Chen want to draw the distinction between the "missing class" and "poor" people is that they want to draw attention to how these people often fall into the cracks, earning too much to benefit from means-tested public benefit programs.  I agree that’s an important policy issue.  But I worry that their discussion creates an impression that the benefits for the poor are more generous than they really are.  And it doesn’t acknowledge how much middle income people benefit from government subsidies for employer provided benefits, especially health care, and the mortgage interest deduction.