Everybody gives Liz Warren a tough time for creating the Consumer Financial Protection Department, now operating without oversight as part of the Federal Reserve, a private bank. I had hoped this book would corroborate my assertion that wives who work end up sending too much of their earnings to the government, as they shift into a higher tax bracket. It doesn’t say that exactly. They overlooked the obvious.

With Ms Warren (62) running for the Senate in Massachusetts, challenging liberal Scott Brown (R-MA, 52) in 2012, it seems like an excellent time to examine her 2003 book. Elizabeth Warren and daughter-co-author Arnelia Warren Tyagi observe that a working couple today earn less inflation-adjusted income than one fully employed worker 30 years ago.

The Two-Income Trap catalogs problems encountered by such families, primarily the lack of contingencies when one person stops working, even temporarily. In the past, if dad lost his job, mom could earn money selling, tricking or clerking. When both parents work and one stops, income drops precipitously.

Contrary to political lore, the average two-income family spend most of their money on housing, taxes and education, not luxuries. Several studies have shown that they cannot forgo frills and thrills to make ends meet.

The authors believe the “heart of the problem” is uneven public education in the USA. Pressure to get their children into better schools encourages parents to buy homes in neighborhoods served by the best institutions. That creates a premium for locations where the schools are better and safer, with less violence and better drugs. To escape from bad public schools, “middle class families are literally spending themselves into bankruptcy for as the old real estate saying goes: location, location, schools.

School vouchers might alleviate the situation but, as the Warrens remark, “the problem is not vouchers, it is parental choice.”

In the last century, I was pressured into getting a college education, on the theory that it would lead to better jobs and a wonderful life. If so, I cannot imagine how things would have gone without my degree. I’d probably be in some dead-end job like massage-parlour manager, living in near-destitution. Despite no cost-benefit evidence, families spend ever-greater amounts on college and greasing the path to admission.

Colleges and universities are no better than they were in my day, only the cost of attending has risen faster than the cost of health care, far exceeding inflation or income. Yet, most tuition spikes do not fund better education. Administrative costs grew by 60% from 1980 to 1997, while their administrative effectiveness seems to have decreased. Sports is another sinkhole. Subsidising the football team, constructing stadiums, buying equipment and coaches are costly, but a football programme is crucial to a college’s reputation. If that sounds more like a Marx Brothers movie plot than reality, I have two words for you: Horse Feathers!

Feminism encouraged wives to join the workforce, enabling them to enjoy rewarding careers. Another fallacy. Like most men, most women have jobs, not careers.

In the rush to shove women out the door, the financial implications of absent parents and loss of emergency income were ignored. Seems playing US football is cool, housekeeping is not.

Another feminist complaint was that divorced women had no credit because all the money and loans were in their husbands’ names. That was remedied by the Equal Credit Opportunity Act, signed into law by US football legend and unelected president Gerald Ford in 1975. Its unintended consequences: lenders including the wife’s income in evaluating loan applications, allowing a couple to finance a more expensive home, chaining them to payments barely manageable on two incomes. If one is lost, their family are screwed.

The Two-Income Trap avoids blaming government to the extent it deserves; economic policies discourage savings, except through such retirement vehicles as 401Ks. If these are tapped for emergencies, huge penalties are levied by the government. Imagine that one or both parents are unemployed, need money from a retirement account. It is not really income, but the government regards it that way, so they can soak the unfortunate, who have lost jobs due to such circumstances as illness, layoffs, over-regulation and death.

The authors suggest all forms of savings should be encouraged, so families can handle financial emergencies. I suggest maybe just stop trying to force behaviour through the tax code.

With the two-income family, divorce is catastrophic. Two residences must be supported on the same income.

The authors attribute the increase in bankruptcies to these circumstances. Unfortunately, that traumatic event does not excuse all debts. Taxes, student loans, alimony and child support are not forgiven. So money misguidedly borrowed to fund higher education is still owed, even though it results in neither a great job nor a wonderful life. And taxes, a form of extortion, continue to build with interest and penalties.

A few families have private insurance covering emergencies. Others qualify for Social Security Disability Insurance (SSDI). Washington recently announced that SSDI will be the first entitlement programme to go bust, before even Medicare.

The book gives credit cards and bank loans exhaustive attention. Most of their complaints are legitimate. Hardly surprising.

Families having trouble making ends meet are encouraged by banks to borrow money against their home equity, often at inflated interest rates for a secured loan, which puts home ownership in jeopardy.

If you’ve ever had a store credit card, you know what a ripoff they are. A major shift in the economy during the past few decades has retailers earning more money from interest, late fees and other credit card charges than from selling merchandise, due to uncapped interest rates and deregulated lending. No wonder Sears doesn’t care if you can’t find a sales clerk. (Oops, sales associate.)

The authors’ solution is reviving the Usury laws, tying interest rates to inflation, reducing the incentive to lend money to those who cannot afford to repay it. Now, the high fees provide an unending stream of cash to the retailer without reducing the principal owed by the customer.

Over the past four decades, banking profits (inflation adjusted) have more than tripled. As with universities, this is not due to greater efficiency or a better product. Lenders pay for marketing, collection and loan interest. Since 2001, the Federal Reserve have lowered interest rates nine times, reducing the cost of money to banks. During that same period, bank interest rates on credit cards remained about the same. In fact, new gimmicks netted more fee income. Their lower interest cost gave credit card companies a $10 billion windfall.

Elizabeth Warren was the senior advisor to a committee studying the increase in personal bankruptcies (1994). Before their report was issued in 1997, a banking group, the National Consumer Bankruptcy Coalition (NCBC), lobbied for tougher regulations on consumers.

The Warren study found that families were in trouble because of job losses, medical problems and divorce. Lending practices put families at risk, but the bankruptcy laws were working as intended, to give families a fresh start.

For some reason, banks were reluctant to change their profitable lending policies. They wanted it tougher for consumers to file for bankruptcy. A bill to do that was vetoed by President Clinton, reintroduced in the next session, when it did not pass because of Chuck Schumer-related issues. (Need I say more?)

As stated, the book downplays government’s significant role in creating disaster. Besides pressuring banks to lend to unqualified buyers, the tax code encourages purchasing by offering an income tax credit that barely offsets two workers paying higher tax rates than one. Taxes fund schools, so couples must reside in pricier neighbourhoods with better schools. Some families pay for private schools, although their taxes support the public schools they avoid.

The myth of over-consumption holds that families spend so much on frivolities that they can’t pay their bills. Many luxuries are cheaper than ever, so they are not the problem. It is the cost of housing and other necessities (food, gas) that have risen. And there is inflation, the silent tax.

All in all, an informative book, if a bit oddly narrated. It is better than a boring academic tome, although there are plenty of notes, if you care to fact-check. While hardly a radical tome, some of Elizabeth Warren’s other contributions and remarks [see LINKS below] point to her being more like Ted Kennedy than Scott Brown, liberal as he is.

If Massachusetts elect her, it won’t just be their problem. Senators represent the entire nation.

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L I N K S