Elizabeth Warren’s book, The Two-Income Trap, explained

Many presidential candidates write books. Most are invariably forgettable — the product of the same collaborative writing process that produces a “major address” but without the excitement of live performance, an audience, or a charismatic performer.

Elizabeth Warren is different. She’s written extensively — as a prominent legal scholar focused on bankruptcy — long before she entered politics. She lays out ideas that she hoped would provoke or persuade rather than win elections. Much of this is fairly dry academic fare like 1999’s “Financial Characteristics of Businesses in Bankruptcy” (co-authored with Jay Lawrence Westbrook and published in the American Bankruptcy Law Journal). Then in 2004, she tried something different. She collaborated with her daughter Amelia Warren Tyagi, a management consultant, on a work of serious nonfiction aimed at a popular audience: The Two-Income Trap: Why Middle-Class Parents Are Going Broke.

Aram Boghosian for The Boston Globe via Getty Images

The book is chock-full of thoughts on a wide range of public policy issues but written long before Warren’s first run for public office or even before her campaign for a Consumer Financial Protection Bureau existed in its mature form. It’s much realer and more interesting than any campaign book.

It’s an important read as the 2020 campaign begins because it offers unvarnished insight into the evolution of Warren’s thinking as she moved from being a Republican in the mid-1990s to the left-wing Democrat we know today. The policy ideas she espoused 15 years ago are considerably smaller-scale than the platform she’s developed over the past decade, but the diagnosis that's led her to her current positions are all right there in the book — a book that argues that the fundamental structure of the American economy has shifted in a way that loads the dice against middle-class families.

She also frames the issue in some unusual and provocative ways that could end up hurting her with feminists or, more optimistically, broadening her political appeal to reach swaths of working-class America that are open to a progressive economic agenda but more inclined toward traditional views on family life.

The context for the book

Warren’s area of academic specialty was bankruptcy law (a later Warren book carried the scintillating title Secured Credit: A Systems Approach), and in that field, she was a leading figure in one side of a long-running dispute between two main points of view.

One school of thought held that American bankruptcy law was too kind to debtors and made it too easy for individuals to wriggle out of their financial obligations. These bankruptcy hawks made a major push for a reform of bankruptcy law late in the Clinton administration, and while they came up short then, they ended up taking another ultimately successful run at it during the mid-Bush years. Warren stood on the other side of the argument, seeing relatively generous access to bankruptcy as a key strength of the American economic system.

A key point for the hawkish side of the argument was that the rate at which American families file for bankruptcy had been steadily rising — a sure sign of profligate overspending and a need to crack down.

Warren’s book stems from her interest in empirical assessment of the causes of bankruptcy and led her to propose a thesis that was more striking at the time than it sounds today. Households were declaring bankruptcy not because of a collapse of spending restraint but because of objectively bleak economic circumstances for the American middle class. In the age of Trump, of course, concepts like a decades-long period of wage stagnation are commonplace. But that wasn’t true in the Bush years, when the main viewpoint on the right and in the center was that household income had been more or less steadily rising.

Warren’s central argument in the book is that this rise in household income was almost entirely driven by the increase in the number of two-earner families. And adding income by adding a second worker, she argues, has very different economic implications than rising pay for a single worker. In practice, the book says, the increasing ubiquity of two-earner households leaves families in more precarious financial circumstances with more brittle budgets that were more prone to tip over into insolvency if a problem cropped up.

The basic thesis that middle-class Americans need help is a lot less controversial today than it was when Warren wrote the book, but the fact that she was thinking along these lines in the mid-aughts is crucial to understanding her worldview: To her, America’s economic problems have roots that far predate the Great Recession and that require something much more fundamental than a macroeconomic recovery.

The “two-income trap,” described

The “two-income trap,” as described by Warren, really consists of three partially separate phenomena that have arisen as families have come to rely on two working adults to make ends meet:

• The addition of a second earner means, in practice, a big increase in household fixed expenses for things like child care and commuting.
• Much of the money that American second earners bring in has been gobbled up, in practice, by zero-sum competition for educational opportunities expressed as either skyrocketed prices for houses in good school districts or escalating tuition at public universities.
• Last, while the addition of the second earner has not brought in much gain, it has created an increase in downside risk by eliminating an implicit insurance policy that families used to rely on.

This last point is really the key to Warren’s specific argument about bankruptcy, though it’s the first two that would drive her larger interest in politics. Bad things have always happened to families from time to time. In a traditional two-parent, one-earner family, there was always the possibility that mom could step up and help out when trouble arose.

“If her husband was laid off, fired, or otherwise left without a paycheck,” Warren and Tyagi write, “the stay-at-home mother didn’t simply stand helplessly on the sidelines as her family toppled off an economic cliff; she looked for a job to make up some of that lost income.” Similarly, if a family member got sick, mom was available as an unpaid caregiver. “A stay-at-home mother served as the family’s ultimate insurance against unemployment or disability — insurance that had a very real economic value even when it wasn’t drawn on.”

A modern family where mom is already working has no “give” and is much more likely to be pushed into bankruptcy by job loss or family illness unless it builds up a big financial cushion.

Aram Boghosian for The Boston Globe via Getty Images

But most families, of course, didn’t build up big financial cushions. The main financial savings vehicle for the American middle class was the owner-occupied home in the good school district. But the only way to tap that asset is to sell it and move someplace less desirable, disrupting children’s lives and risking a tumble out of the middle class.

Consequently, families in practice try to deal with financial hardship by availing themselves of the wide range of consumer credit opportunities made available by the ongoing deregulation of the financial industry. This combination of brittle household finances, stagnant discretionary incomes, and wide availability of poorly understood debt products fundamentally explains the runup in bankruptcies.

A book social conservatives can love

A certain strand of the American right has long expressed quiet admiration for the book, since its thesis can on some level be boiled down to the idea that feminists were too optimistic about the implications of women’s mass entry into the workforce. A recent column by Matthew Walther in the Week says, “It would be difficult to think of any American politician not named Rick Santorum who has made a more reactionary argument than the one at the center of Warren’s 2003 book.”

And he means it in a good way.

Warren and her daughter clearly both anticipate and reject the notion that the moral of the story is that women should stop working, writing that “as two working mothers, we confess to deep resistance to calling for such a move.” They say that they “remain dedicated to the best part of the feminist movement — the rock-solid belief that women who want to work should have every opportunity to do so.”

Yoon S. Byun/The Boston Globe via Getty Images

But the book does connect with social conservative concerns on a number of levels. First and foremost, it is grounded in a realistic portrayal of the fact that most people have jobs rather than careers and that for most modern mothers, working is less a choice than a practical economic necessity. Second, from the title of the book on down, it is focused clearly on the problems of normative two-parent middle-class families and how to facilitate their existence and comfort rather than dwelling on the arguably more acute concerns of marginalized groups. Last and by no means least, the whole premise of the book is that having and raising children is an important activity that should be valued by society — taking issue with both free market dogma and the notion that family life is just a lifestyle choice on par with pet ownership or a hobby.

Near the end of the book, they concede that one possible takeaway from their advice is that people should stop having kids — an outcome they deplore.

“If the word gets out that families with children are nearly three times more likely to collapse into bankruptcy,” they write, “will even more women decide not to have children?” They say that they’re not sure but denounce those who “view parenthood as nothing more than another ‘lifestyle choice,’ not so different from joining a commune or developing a passion for windsurfing.”

It’s not exactly that these are sentiments mainstream Democrats disagree with, but the framing around sustaining middle-class family life is certainly a different point of emphasis from the politics of Lean In and shattering glass ceilings. And while Warren and Tyagi are themselves accomplished professionals, they are solicitous of the interests of people who prefer more traditionalist family arrangements — arguing, for example, that publicly funded preschool should be paired with subsidies for stay-at-home parents.

Warren’s hard shots at Joe Biden

Another place where Warren parts ways with the feminist establishment comes in the context of a fairly vicious criticism of then-Sen. Joe Biden, who happens to be a rival contender for the 2020 primary nomination. Warren’s roots are in bankruptcy law, and while Two-Income Trap offers policy ideas on a range of topics, it’s clear that bankruptcy — and especially the industry-backed push to reduce Americans’ access to generous bankruptcy terms — was the key passion point for her.

In terms of contemporary politics, one of the most striking sections of the book is when she discusses Biden’s work on behalf of industry-friendly legislation — and slams women’s groups for regarding him as a champion of women’s interests:

Women’s groups have too few dollars and too little (wo)man power to fight every injustice. But there is another lesson in the tale of the bankruptcy bill. Women’s issues are not just about childbearing or domestic violence. If it were framed properly, middle-class economic reform just might become the issue that could galvanize millions of mainstream women to join the fight for women’s issues. The numbers are certainly there. This year, more women will file bankruptcy papers than will receive college diplomas. More women with children will search for a bankruptcy lawyer than will seek subsidized day care. And in a statistic with special significance for Senator Biden, more women will be victimized by predatory lenders than will seek protection from an abusive husband or boyfriend.

The point is not to discredit other worthy causes or to pit one disadvantaged group against another nor would we suggest that battered women deserve less help or that subsidized day care is unimportant. The point is simply that family economics should not be left to giant corporations and paid lobbyists, and senators like Joe Biden should not be allowed to sell out women in the morning and be heralded as their friend in the evening. Middle-class women need help, and right now no one is putting their economic interests first.

Warren goes on to call out the hypocrisy and indifference of conservative groups that claim to put family values first while ignoring economic concerns.

“Any group that is serious about lowering divorce rates should focus on reducing the economic stress that strains a marriage,” she writes. But in the context of her current positioning on the left flank of the Democratic Party, there’s nothing particularly interesting about her criticisms of conservatives, while the ferocity with which she goes after Biden (and, in a separate passage, Hillary Clinton) and elements of organized feminism in Washington is striking.

Warren wants tougher bank regulation

Writing long before the 2007 financial crisis or the ensuing Great Recession of 2008-’09, Warren was way ahead of the political curve in terms of criticizing the banking industry.

Her focus, of course, was not on the macroeconomic and bailout-related issues that would later come to the fore but the question of consumer protection. The toaster analogy that would eventually become the centerpiece of her case for a Consumer Financial Protection Bureau makes its debut in Two-Income Trap.

The government, she observes, simply will not let you buy a toaster that experts deem to be unsafe. Even if the unsafe toaster could be cheaper to sell and more profitable to make, you’re just not allowed to do it. And while the book does not specifically include the CFPB proposal, the point of introducing the toaster analogy is to suggest that financial products, similarly, should be subject to paternalistic regulation aimed at protecting consumers from unsound practices.

Bill Clark/CQ Roll Call

“Predatory loans may not set houses on fire the way a faulty toaster might,” Warren writes, “but they steal people’s homes all the same. America has had more than twenty years to observe the effects of a deregulated lending industry, and the evidence is overwhelming. It is time to call the experiment a failure.”

At this point in her career, Warren wasn’t calling for structural reform of the regulatory apparatus, but she was calling for tough new rules, not just to crack down on fraudulent practices (though of course she favored that) but more broadly to curb high-interest lending. She concedes that her ideas would reduce consumers’ access to credit cards and large mortgages but regards that as a good thing — presciently warning, for example, that the then-current boom in subprime lending to low-income and minority households was likely to end in tears.

But what’s interesting is that while Warren the fierce Wall Street critic we know from Congress is very much present in the book, the more aggressive overall reformer of the American economy in some ways is not.

Warren’s agenda used to be less ambitious

If Two-Income Trap were released today, I’d say it suffers from a striking mismatch between the scale of the problem it identifies and the relatively modest solutions it proposes. Tougher regulation of consumer lending would be welcome but obviously would not fundamentally address the underlying stagnation of income.

Warren and Tyagi, writing in the early aughts, nod in the direction of expanding health insurance but ultimately don’t say anything particularly clear about it. They embrace the idea of a more robust disability insurance program, day care subsidies paired with tax credits for stay-at-home parents, and call for caps on public university tuition charges (this was before the big funding cuts that the Great Recession set in motion).

But these are basically small changes. They even explicitly say that America does not need to “build a quasi-socialist safety net to rival the European model.”

Instead, they put a lot of hope in a change to how public school assignments work (more on this later), which would probably not actually change things as much as they suggest. One way to think about Warren’s political evolution over time is that in the 15 years since her book was written, her policy ambitions have steadily risen to match the scale of her longstanding diagnosis. Today’s Elizabeth Warren embraces Medicare-for-all and investing large sums of money to eliminate tuition at public colleges altogether, along with an interim step that could do a lot to cut prescription drug prices.

Jim Watson/AFP/Getty Images

And while she’s still interested in regulatory solutions and consumer protection, she has much broader ambitions here as well, including a much tougher approach to white-collar crime and a plan to give workers a meaningful say in the management of large companies. The theme that the economic system is rigged against middle-class families is very much present in Two-Income Trap, but the full agenda to unrig it was still years in the making. But one of her key recent policy initiatives around housing has its clear origins in her thinking for the book.

Innovative thinking on housing and education

A key distinctive idea in Two-Income Trap is that much of the nominal gains of adding additional workers to the household have been eaten away by competition for access to good schools.

On the way up, everyone wants what’s best for their kids, but there’s only one “best school in town” and only so many houses in that neighborhood. So as more families add a second earner to their portfolio, the prices of houses zoned for the best school rise to the point where everyone needs a second earner to afford the house with access to the good school. At the end of the cycle, nobody is better off but everyone is more prone to bankruptcy due to the more fragile family financial situation.

On the way down, families have accumulated an asset in the form of the house, but to sell the house and tap the value of the asset means compromising on the kids’ education — the last thing families want to do.

Warren and Tyagi float as a solution the idea that school districts should eliminate geographical preferences. Right now in my DC neighborhood, houses located just west of 14th Street are considered more desirable than houses like mine that are just east of 14th Street because the westerly homes are zoned for Ross Elementary School rather than Garrison Elementary School. But the truly desirable real estate in DC is west of Rock Creek Park, where the elementary schools feed up to Woodrow Wilson High School, considered the best in the city. Families can apply to attend out-of-boundary schools (and many do), but strict preference is preserved for in-boundary applications, a policy that feeds into house prices and makes access to the best schools a function of economic privilege.

Warren and Tyagi’s idea would capture some of the key benefits of the charter school movement — choice for parents and a decoupling of educational opportunity from ability to buy a house in affluent neighborhoods — without raising the specter of privatization or the defunding of the mainstream public school system.

It’s not, however, something Warren has championed as a senator — in part because it’s not clear how you’d accomplish this as a matter of federal policy. Experts I’ve discussed it with also note that the idea might be unworkable in practice, as affluent neighborhoods could simply push to gerrymander themselves into their own independent school districts.

The thinking behind this education policy idea is, however, evident in Warren’s more recent work on housing policy. Like many progressives, Warren wants to push for more spending on affordable housing programs. But she is also attuned to issues on the supply side and that simply pushing more money into the system could serve as a de facto subsidy to landlords that does nothing to ameliorate the bidding wars that have undermined middle-class financial security. So her proposed legislation includes meaningful efforts to try to push and prod local governments into allowing more homebuilding and break the cycle of scarcity.

A glimpse of the electable Warren

Perhaps more than anyone else in the Democratic field, Warren’s prospects are haunted by worries about electability, whether framed in gendered terms around “likability” or in more data-driven terms that her 2018 reelection performance was a lot worse than you’d expect from a blue-state senator running in a Democratic wave year.

Suzanne Kreiter/The Boston Globe via Getty Images

But while Two-Income Trap does not exactly reflect Warren’s current, much more ambitious, post–financial crisis policy agenda, it does outline a version of Warren that could be more broadly electorally appealing than her current national perception. The Warren of Two-Income Trap is fiercely progressive in championing the public interest over the bank lobby and her determination to clean up the political system, but is also attentive to the ways that poorly designed social programs can have perverse consequences.

And she’s very much not a dogmatic partisan or a member of any kind of establishment — sharply critical of the Republicans who pushed for the banks’ preferred bankruptcy law, but also savage in her attacks on prominent Democrats, including Biden and Hillary Clinton, who helped them do it.

Perhaps most importantly, Two-Income Trap Warren is offering a pitch for a progressive economic agenda that is squarely framed to appeal to people with moderate-to-conservative instincts on some social issues.

Democrats often seem to implicitly cast the “white working class” as composed exclusively of men who wear hard hats and work in factories while “women” are all ambitious professionals trying to balance family obligations with the drive to make partner or shatter glass ceilings in the C-suite. Two-Income Trap, by contrast, speaks to the questions recently raised by Tucker Carlson as to whether unfettered capitalism is undermining the traditional family.

Warren’s core argument in the book is that shifts in family life over the past couple of generations have not been all for the good, and that the explosion of economic inequality that’s accompanied them is part of the reason. Both the ideas she espouses in the book around bank regulation and the ideas she’s only later come to embrace fundamentally connect to this same theme that the kind of stable families conducive to child-rearing that conservatives idealize fundamentally require a different organization of the American economy.

It’s a framing of the relationship between the economy and family life that, while broadly compatible with the existing progressive policy agenda, is nonetheless pretty strikingly different. It has drawn praise from pundits who lean right on social issues but more to the center on economics. If Warren could translate that praise into actual electoral support from similarly inclined voters, it would give her a clear path to general election victory, which, in turn, seems to be the biggest doubt primary voters have about her.

And perhaps most of all, at a time when conservatives have — by lining up behind Donald Trump — seemingly forfeited the notion of traditional family values, Warren offers a plausible vision of how Democrats could claim that mantle for themselves.

Joseph Prezioso/AFP/Getty Images

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