Elizabeth Warren Freak Out, 2: Other things.

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That whole middle-class thing.

Warren writes a lot about the middle class and the struggles it faces in the 21th century. Here she is in Huffington Post with America Without a Middle Class.

I think this sets people off. There are those who think that once you focus on growth nothing else matters, and that worrying about the distribution is a waste of time. There are those who think that the middle-class is “overrated” – it’s bizarre to believe but they are out there in the economics departments – and the fact that people can get food and electronics really cheap now should more than make up for a two-tiered America. And at the basic level the idea that the fragile American middle-class is collapsing causes such cognitive dissonance among the top 10% (and especially the top 1%) that they’d rather the discussion goes away.

In case you can’t tell, I don’t think a strong and robust middle class is “overrated.” Politically, to the extent that our country is an experiment in liberalism it depends on a subject who exists in the public and participates in the language of liberty, autonomy and rights. Many have noted that liberalism is incomplete, and if you map what is on the outside of that experience – a subject who exists in private and participates in the language of necessity, dependency and needs/duties – you see how women and minorities are excluded. I think we can close that, but as inequality moves hand in hand with increased economic insecurity, when your job traps you for health care, when your home traps you for worthless debt, when your ability to look for a job is hampered through a dense web of observations of your private life, the collapse of the middle class threatens the liberal project. And that’s something a really bitchin’ cheap stereo can’t replace.

Did Elizabeth Warren Cause the Credit Crunch?

Last critique, where it gets bizarre. I could see this being a talking point, so let’s break it down. e21 proposes: Elizabeth Warren Starts a Credit Crunch. Huh? From this:

Though the law was intended to take affect in February of this year, it had an immediate effect as credit card companies raced to raise rates and cut credit lines while it was still legal to do so. For instance, this graph from Robert Hall shows how interest rates paid on credit cards started rising in the first few months of 2009, exactly when the credit card bill was passed. Credit card rates were stable in prior months, when the economy was doing poorly. Interest rates in other categories – such as mortgages and car loans – stayed flat or declined over the same period. This all suggests that the passage of credit card reform resulted in higher interest rates on credit cards.

Three things: (1) The timing doesn’t necessarily work out. From Reuters: “The law largely codifies a set of rules issued by the Federal Reserve last year and puts them into effect in February 2010, five months sooner than the Fed had planned.” The Federal Reserve had already “passed” this previously; Congress just sped it up. So it’s not clear to me why the crunch wouldn’t have gone into effect five months earlier.

(2) Is there anything else going on with credit cards during this time period? From our DIY Stress Test series, the Federal Reserve’s stress test numbers:

Credit cards take an enormous jump in expected losses under the adverse scenario stress case, the case we look more like than the baseline. Those are huge losses! We should expect rates to go up, up much more than they have. There’s other ways to quantify the write-offs, the ratings agencies have them too but I’m not going to dig right now. Credit card writedowns are massive.

Now housing isn’t going down as much, but that’s certainly because of actions taken by the Federal Reserve and the government to keep the interest rates low for housing. (3) Also, and this gets back to the pragmatism in economics thing: I’m not convinced credit card spreads are risk-based. That was an analysis I looked at using jumps and rate movements under the blog microscope of a credit-risk quant last year, and I think there’s all kinds of new evidence I’ve seen since then to make me more of a doubter.

So no. Not seeing it.

In Conclusion

So we have aggressive with TARP accountability, highly-ranked but not the highest-ranked scholar, maybe a bit *too* worried about the struggling middle-class, and brought transparency to the credit card market without sending a wave of interest rate jumps. Where do I sign up?

Oh right, Progressive Change Campaign Committee (PCCC) has a webpage for that.