"We've Built This Latest Economic Boom On Borrowed Money"

Elizabeth Warren of Harvard Law, our very favorite consumer debt expert, gave an interview to Marketplace this morning in which she talked about the rising cost of so-called “fixed expenses” and their affect on the American consumer.

Harvard Professor Elizabeth Warren has spent a career looking at personal debt. I asked her if consumers can sustain the engine of our economy much longer.

Elizabeth Warren: No, it’s not sustainable. We’ve built this latest economic boom on borrowed money. Consumers, to the extent that they’ve stayed afloat, have managed to stay afloat by using their credit cards and by taking out home-equity lines of credit.

Krizner: And they’ve used that credit for what? For lattes and microwaves and expensive vacations? Have Americans been over-consuming?

Warren: I wish that were the case, but the data say otherwise. Americans are in a lot of debt not because they’re overconsuming, but because of big fixed expenses that they really can’t wiggle out of.

Krizner: When you say “fixed expenses,” what are you talking about?

Warren: Where American families are getting ruined financially is in the areas of mortgages and health insurance. The fact that they’ve got to have two cars, the fact that they’ve got to put their children in child care, their taxes — the things over which they have little or no control.

Krizner: But can that really be the whole story? I mean, in gross numbers, consumption has tripled, apparently, in about 20 years. Surely a good chunk of that is discretionary spending.

Warren: Let’s look at the basics. What families are spending on clothing in the last 30 years, it’s down 33 percent in inflation-adjusted dollars. What they spend on food is down about 20 percent. What they spend on appliances, down about 52 percent. It’s not stuff that’s driving families to the poorhouse.

Priced out of the American Dream