Bankruptcy & the American Dream

Walter Kirn for the New York Times writes a column entitled Magazine > The Way We Live Now: Broke” href=”http://www.nytimes.com/2005/03/27/magazine/27WWLN.html?pagewanted=print&position=”> Broke. He describes the new bankruptcy bill as follows:

The unhappy ending is going bust, of course, and thanks to an almost certain new federal law that the president has vowed to sign, this ending is set to grow unhappier still — at least for a significant percentage of the one million to one and a half million Americans who file for bankruptcy protection every year and will, as early as this autumn, find it much harder to wipe clean their books and get back on their economic feet. For the credit-card issuers and consumer-finance companies whose well-financed lobbyists backed the bill (whose central provision requires bankrupt debtors with incomes exceeding their statewide median incomes to settle for long-term repayment plans), the results should prove more gratifying.

(I disagree with his assessment here. I don’t think this is going to result in much more income for the credit card companies. I suspect the administrative costs of keeping the accounts open through the bankruptcy will eat up most of the blood they are able to squeeze out of the turnips.)

In any event, Mr. Kirn describes the many ways in which Americans are urged to spend, spend, spend, and then, once they reach rock bottom financially, “Suddenly the same figures that urged the debtor to shop until he dropped surround his fallen body like hissing Puritans out of a Nathaniel Hawthorne fable. Garbed in steeple hats and bursting with pointed apothegms about pennies saved and rainy days, they close in with their red-hot branding irons and mark his flesh with a shy scarlet ”B,” after which they type it on a screen connected to every computer in America.”

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Meanwhile, Mary Deibel and Lance Gay for the Scripps Howard News Service have an article entitled Studies Find it’s getting harder and harder to pull yourself up by your bootstraps.

According to the article:

Trend-watchers looking for changes in family fortunes have turned to the 40-year Panel Study of Income Dynamics, which has followed the finances of more than 5,000 American families and their 65,000 members for three generations. Economists often break down income and wealth into quintiles, or one-fifth blocks of the population.

Following these families, economists Katharine Bradbury and Jane Katz of the Federal Reserve Bank of Boston found that income mobility has declined since the 1960s. Families’ ability to move to a higher level declined in the 1980s and 1990s.

Two-wage-earner families were a major source of financial advancement starting in the late 1960s, the researchers found: “While a working wife was not necessary for a family to move ahead, having one definitely helped.”
. . .
Frank Stafford, a University of Michigan economist who oversees the panel-study program, isn’t surprised by the pessimism expressed toward the future by Scripps poll participants. “Our data show the extended dependency of children into their 30s is a real phenomenon, and these people are reflecting that real concern,” he said.

When it comes to moving up the wealth ladder, American University economist Thomas Hertz reports in “Rags, Riches and Race” that opportunity is hard to come by:

– Some 37 percent of children born to the richest 20 percent of panel-study families stayed on top.

– About 42 percent born to the poorest 20 percent wound up at the bottom where they started, and another 24 percent moved up just one rung.

– Only 6 percent of the poorest made it to the top fifth of wealth.
. . .
Despite a culture raised on the American dream, success stories may be more fiction than fact, according to sociologists Robert Perrucci, Earl Wysong and David Wright. Their work on parent-child financial changes since the 1970s concludes that your position on the class scale depends on who you and your family know and where you were educated.

“There is not very much class mobility in the United States, and there never has been,” said Wright, a Wichita State University professor. “What mobility has existed has been mostly for the people who are affluent, the people who have resources to become richer.”