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Three Cheers for Elizabeth Warren, Our First Blogger Senator

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I've long been a fan of Elizabeth Warren and I'm very glad she has been elected to the United States Senate. We need someone with Warren's experience, expertise and integrity in the U.S. Senate.

Warren is our first blogger Senator. Way back in 2006, she was one of the founders of the blog Credit Slips, a somewhat wonky and academic—but still highly readable—blog on "all things about credit, bankruptcy, consumers, and financial institutions." These days everyone has a blog but back in 2006 this wasn't the case.

And when Warren was tapped by Obama's White House to oversee the creation of the Consumer Financial Protection Bureau, one of the first things she did was start blogging about it.

One of the wonderful things about having a blogger Senator is that we have a rich pixel-trail on which to follow her thoughts. This is far better than, say, having to read through her academic papers. The blog posts expose her thinking more directly, without the smear of academia across the lens.

Take a look at Warren's archives at Credit Slips and you realize you are glimpsing at a brilliant and open mind. Bankruptcy, student loans, bank bailouts, credit cards, home prices, deleveraging undermining stimulus: blogger Warren is all over it.

Take a look at the post titled "Senate Thinks About The Middle Class." While most policy makers and too many academics were blind to the coming crisis, Warren was warning that American households were unsustainably debt burdened. What's more, she correctly diagnosed the source of the debt burden: a lack of income.

This is a point a lot of people still don't get. They talk about Americans with flat-screen televisions, Sub-Zero kitchen appliances and too many bed rooms in their McMansions. Americans are described as spendthrifts who lived beyond their means, didn't save enough, and ran up credit card debts. You've heard this argument plenty of times: the American economy was fragile because Americans weren't saving enough, and Americans weren't saving enough because they were engaged in frivolous spending.

I suppose that makes a neat morality tale for some people. But it's not what was really happening. In reality, the American household in the years before the financial crisis had less disposable income than the American household in 1970. The fixed costs of the American family—taxes, mortgages, childcare, automobiles and healthcare—had eaten up any and all income growth.

Here's how Warren put it in testimony to the Senate Finance Committee in March 2007, in answer to a claim by another witness (Scott Hodge, President of the Tax Foundation) that the middle class was better off at the time than it was a generation ago:

The only question I was raising, you said the middle class is better off because they are earning more money as dual-income couples. All I am pointing out is, the economic data do not bear that out. They show families who, after they account for their basic fixed expenses, have less cash left over than their one-income counterparts had a generation ago. That means they have put more people into the workforce, they are working harder than ever before, they are struggling to try to get children into pediatricians' appointments at 7:30 in the morning so they can still get to work on time, and at the end of the month they actually have less money than a generation ago had.

Why were Americans so starved for income? This shouldn't have been happening. Sending more women to work should have brought in more income to households, right? Our productive capacity as a nation should have been rising. And it was. Income was coming in but it was being drained just as fast.

Here's how Warren described the situation:

The short version is that, in these ordinary consumption expenses, there is just no evidence that families have gone crazy. If anything, median-earning families shop carefully and spend carefully. Where the changes are, as the chart on page 7 shows you, is in the big fixed expenses. Housing has gone from being 5.8 rooms to 6.1 rooms.

This is not an issue about granite counter tops and spa bathrooms and McMansions, this is an issue for median-earning families. The median family in the United States has either gone from two bedrooms to three bedrooms, or from one bath to two baths, but not both.

So how much more do they spend in mortgage payments on that house? The answer, in inflation-adjusted dollars in a single generation, is a 76-percent increase that families are spending. In short, many families in America today cannot buy the houses they grew up in, even if those were quite modest homes.

Health insurance, 74-percent increase. Cars have actually gone up 52 percent, but that is because, with two people in the work- force, families have gone from one car to two cars.

Child care. Not an expense of a generation ago, so I gave it a 100-percent increase.

And taxes. Because her paycheck is taxed at the margin, her first dollar of earnings is taxed at the margin for the last dollar that he had earned, if both of them are in the work- force, or vice versa if you want to play it on margins, taxes have also gone up about 25 percent for this median-earning family.

Let's set aside child care and health care, where the problem of rising cost has been discussed quite widely. What's striking here is Warren's attention to taxes and housing. When was the last time you heard a Democratic Senator complaining about the tax burden on the middle class? Or pointing out that rising home prices resulted in a drain on household income rather than some kind of way for everyone to get rich?

Well now we have a U.S. Senator who knows that taxes were secretly hiked 25 percent on households from 1970 to 2004, a time when most people think taxes went down. We have a U.S. Senator who clearly saw—before the crisis—that household income was falling too short. A U.S. Senator who recognized that middle-class America wasn't engaged in some crazed spending spree—it was struggling to keep its head above water.

I have one word to describe my feelings about this: hurray!

Follow John on Twitter. (Market and financial news, adventures in New York City, plus whatever is on his mind.) You can email him at john.carney@nbcuni.com.

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