Recently the Wall Street Journal had an article about medical billing errors. These can be very costly because they can impact your credit rating. But there is one billing practice they missed. Some health care providers (we have found this with two and it is probably more common) begin the billing date as of the date of service but don’t send a bill until insurance has paid their part. Then when they do send a bill for the coinsurance it is “late” and they threaten to turn it over to a collection agency. In other words, the very FIRST bill you may get already has your account as delinquent.
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Doing just about anything in the U.S. today involves seeing a lawyer. Congress, the states and administrative agencies have passed a vast network of laws spreading over all aspects of life — not just business transactions, but family relationships, personal finance, the workplace, birth and death. Lawyers are expensive. Good lawyers are very expensive. Want to change this? Go see a lawyer.
Benjamin Barton’s new book, The Lawyer-Judge Bias in the American Legal System, shows how things got this way, and it will open your eyes.
Here’s the basic problem, according to Barton, employing the tools of public choice and “new institutionalism:”
- Judges interpret and apply the law in our country as well as regulate lawyers.
- Judges, in turn, are lawyers, owe their jobs to lawyers, and see the world like lawyers.
- Legislators could do something about this, but lawyers are a potent interest group, and judges interpret the laws.
Here’s a taste of Barton’s exhaustive description of how lawyers benefit from this system:
- The first thing a criminal suspect is told when arrested is that he has a right to a lawyer. But the courts do little to ensure that this lawyer is actually effective. For misdemeanors, the courts have decided that having a lawyer is more important than having a jury.
- The courts have gone to great pains to protect lawyers’ image from being tarnished by lawyers who are reduced to soliciting business. No other profession gets the benefit of such anti-competitive rules.
- In most states all lawyers must belong to the official bar association, which makes lobbying easier for lawyers than for other professions.
- Bar regulations are enshrined in state law, thereby protecting them from antitrust laws.
- Lawyers’ independent advice is protected from regulation (Velasquez). Doctors don’t get similar protection (Rust).
- Courts have the ultimate power to regulate lawyers, and have protected this power from legislative intrusion by creative interpretation of state constitutions.
- This regulation goes to great pains to ensure “professionalism” but imposes only minimal standards of conduct.
- Courts have done little to discipline errant lawyers, leaving this to the bar associations, and thus to the lawyers themselves.
- Lawyer regulation ensures high entry barriers that raise costs, particularly for lower and middle class consumers, but have little effect on the quality of the service clients get (here’s my paper on this).
- Law school accreditation standards that are part of these entry barriers prevent the kind of innovation that occurs in the less regulated business school environment.
- Lawyers get special protection from coverage of federal bill collection laws and state consumer protection laws and are less exposed to malpractice liability than doctors.
- Strong confidentiality rules give lawyers a competitive edge against all other types of professionals (according to Barton, “if you have a problem that you need to discuss and you want your discussions to remain private in a later legal action, a lawyer is the advisor for you.”)
- Conflict of interest rules generate more work for lawyers than if everybody didn’t have to have their own lawyer.
- Enron prosecutors sent executives to jail and put Arthur Andersen out of business. Guess who got off?
- U.S. law is both complex and indeterminate, which increases lawyers’ work and is fun for judges. Judges and lawyers have a significant impact on legal complexity.
There are, to be sure, significant causation issues — that is, whether the public choice and institutional factors Barton describes, or other causes, account for all of this lawyer favoritism. But Barton has at least raised a prima facie case, in my view, that lawyers didn’t just happen to be the incidental beneficiaries of other forces in society.
Assuming Barton’s right, what’s to be done? Barton suggests one fix — non-lawyer judges. But he doesn’t explain why our lawyer-dominated system would allow this to happen.
But there’s another way. As Bruce Kobayashi and I have explained in our recently posted Law’s Information Revolution, a new legal information industry is emerging that seems likely to replace or change big chunks of what lawyers now do. This may significantly alter the political equilibrium Barton describes:
- It will create new interest groups, including some lawyers, who want to change the existing rules that lock traditional law practice in place. Legal Zoom and its lawyers are actively litigating against lawyer licensing rules that impede the rise of the legal information industry.
- The legal information industry will reduce information asymmetry and therefore the need for existing anti-competitive rules that favor traditional lawyers.
- The potential for lower-cost and higher-value legal information products will motivate consumers and others to lobby against legal barriers to these products.
Barton notes that there was a period in U.S. history — mid-19th century Jacksonian populism — in which the bar’s hegemony was interrupted. We could be seeing a resurgence of that sort of populism, and therefore maybe a political environment conducive to these changes.
Finally, all of this will have significant effects on law teaching. I’ll be discussing this on Friday at Iowa’s symposium on the Future of Legal Education, and posting my symposium paper soon after.
Geoffrey A. Manne is Executive Director of the International Center for Law & Economics and Lecturer in Law at Lewis & Clark Law School
The problem with behavioral law and economics (and its behavioral economics cousin) is not that it has nothing interesting to say, but rather that the interesting things it has to say do not mean what its proponents think they mean. It is one thing to claim that people are less rational than we thought. It even one thing to claim that people are systematically less rational than we thought, in predictable and important ways. But it is entirely another to presume that the implication of this is a larger scope for government regulation to protect the market and market actors from the depredations of this irrationality.
Why? Well, the market, of course. Just because individuals may be less-rational than we thought does not mean that the complex and nuanced activities of markets can’t account for these deviations (particularly if they are predictable). Add to this well-canvassed problems like government actors subject to the same biases, the problem of competing and conflicting biases, and the problem of unacknowledged, contrary implications, and the case for doing anything about behavioral quirks is extremely weak.
Thus, for example, let’s grant that, as many behavioralists aver, hyperbolic discounting exists. Um, so, if that’s right, what should we do about it? Force everyone to save more of their paychecks for retirement? Insist on opt-out rather than opt-in retirement investing? Ban cigarettes? Raise tax rates? (I don’t know if anyone has argued this one yet, but it seems like a plausible implication, and it’s only a matter of time)
Here’s the problem, as I see it: Let’s say the behavioralists are right that, in the abstract, people save less money for future consumption than they would like. Richard Thaler’s solution to this problem is the “Save More Tomorrow plan (pdf),” which takes advantage of people’s alleged current hyperbolic discounting to commit them to future savings that they actually want but can’t otherwise adhere to when the future actually arrives. This is a “libertarian paternalist” (pdf) solution to the problem.
But there is a problem, even with a libertarian brand of paternalism here. Continue Reading…
Two related items from ICLE:
As regular readers know, interchange fees are a frequent topic of conversation around the blog. Taking the conversation from the ether to the real world, ICLE has funded a white paper and is putting on a conference next week on the topic. The conference, in fact, grows out of the successful online symposium we held here at Truth on the Market a few months ago. An e-book/pdf version of the posts and comments from that sympoisum can be downloaded here, by the way. A few of the participants from the symposium will be participating in the conference, as well (more below).
The paper, by Todd Zywicki (ICLE Senior Fellow and Foundation Professor of Law at George Mason University School of Law), is entitled, “The Economics of Payment Card Interchange Fees and the Limits of Regulation.”
The timing of the paper’s release couldn’t be more fortuitous, as Congress reconvenes next week and begins to confer over the language of the Durbin Amendment to the “Restoring American Financial Stability Act of 2010.” The Durbin Amendment would impose price controls on debit card interchange fees and would restrict the use by credit and debit card networks of certain network rules. As Todd described it recently in a Washington Times op-ed:
Late in the Senate’s proceedings on the financial regulatory reform bill, the Senate adopted – with no hearings and minimal debate – a controversial provision proposed by Sen. Richard Durbin, Illinois Democrat, that imposes price controls on interchange fees for debit and prepaid cards. The amendment also allows merchants to override several rules of payment card networks that currently protect consumers from abusive practicesby merchants. While big-box merchants and convenience stores are declaring this a victory against the financial services industry, if the amendment survives in conference committee, consumers and small banks will be the real losers.
The paper, although focused most heavily on credit card interchange fees (and the attendant complexity of credit card markets more generally) has important implications for the debate over the Durbin Amendment. As the paper’s abstract explains:
Fresh off of the most substantial national liquidity crisis of the last generation and the enactment of sweeping credit card regulation in the form of the Credit CARD Act, Congress continues to deliberate, with a continuing drumbeat of support from lobbyists, a set of new regulations for credit card companies. These proposals, offered in the name of consumer protection, seek to constrain the setting of “interchange fees”—transaction charges integral to payment card systems—through a range of proposed political interventions. This article identifies both the theoretical and actual failings of such regulation. Payment cards are a secure, inexpensive, welfare-increasing payment mechanism largely unlike any other in history. Rather than increasing consumer welfare in any meaningful sense, interchange fee legislation represents an attempt by some merchants to shift costs away from their businesses and onto card issuing banks and cardholders. In particular, bank-issued credit cards offer a dramatic improvement in the efficiency and availability of consumer credit by shifting credit risk from merchants onto banks in exchange for the cost of the interchange fee—currently averaging less than 2% of purchase value. Merchants’ efforts to cabin these fees would harm not only consumers but also the merchants themselves as commerce would depend more heavily on less-efficient paper-based payment systems. The consequence of interchange fee legislation, as Australia’s experiment with such regulation demonstrates, would be reduced access to credit, higher interest rates for consumers, and the return of the much-loathed annual fee for credit cards. Interchange fee regulation threatens to constrain credit for consumers and small businesses as the American economy begins to convalesce from a serious “credit crunch,” and should be accordingly rejected.
The paper presents a detailed analysis of the economics of payment card networks and the implications for the various participants in those networks–from consumers to banks to merchants, among others–of political intervention into the setting of the interchange fee.
Please click on the link to download the paper:
Coinciding with the release of the paper, ICLE, in conjunction with George Mason University’s Mercatus Center, will be hosting a conference in Washington, DC, next week on the interchange fee debate. For more information on the conference and to register, please click here. The conference, to be held on June 9th from 8:30 am to 1:00 pm at the Willard InterContinental Hotel, will cover both the politics and regulation of interchange fees, as well as the underlying economics of card networks and the place of the interchange fee in those networks.
Conference Speakers include:
Thomas Brown, O’Melveny & Myers LLP
Sujit Chakravorti, Federal Reserve Bank of Chicago
Mike Konczal, Roosevelt Institute
Geoffrey Manne, International Center for Law and Economics
Megan McArdle, Atlantic Monthly
Tim Muris, former Chairman, Federal Trade Commission
Felix Salmon, Reuters
Steven Semeraro, Thomas Jefferson University
Fred Smith, Competitive Enterprise Institute
Joshua Wright, George Mason University Law School and ICLE
Todd Zywicki, George Mason University Law School, Mercatus and ICLE
We hope to see you there
In a recent commentary at Forbes.com, former Clinton administration economist Robert Shapiro argues that some 250,000 jobs would be created, and consumers would save $27 billion annually, by reducing the interchange fee charged to merchants for transactions made by consumers using credit and debit cards. If true, these are some incredible numbers.
But incredible is indeed the correct characterization for his calculations. Shapiro’s claims, based on a recent study he co-authored, rest on tendentious accounting, questionable assumptions, and—most crucially—a misunderstanding of the economics of interchange fees. Political price caps on interchange fees won’t help the economy or create jobs—but they will make consumers poorer.
First, Shapiro estimates the employment impact of a redistribution of fees using the same stimulus multiplier that the Obama administration uses to tout the effect of its stimulus package. But it is completely inappropriate to simply “plug in” the multiplier for government stimulus to calculate the effect of a reduction of interchange fees —unless the interchange fees currently paid to banks somehow simply disappear from the economy, contributing nothing to job creation, lowering the cost of capital, or increasing access to credit. Even assuming that some portion of the fees are pure profit for card issuers, those profits must be paid out to shareholders or employees, invested, or used to bolster bank balance sheets (which provides capital for lending). So, unlike the stimulus, this is at best merely a politically-mandated wealth (and employment) redistribution from card issuers to merchants, and any calculation of apparent economic gain must be offset by a similar calculation of loss on the other side. Having ignored this offset, Shapiro’s conclusions are completely untenable.
But Shapiro also misunderstands the economics of payment card networks and the role of the interchange fee within them. For example, Shapiro estimates that 70% of merchant savings from reduced interchange fees would be passed on to consumers in the form of lower retail prices. But that is pure speculation. In Australia, where regulators imposed price controls on interchange in 2003, fees paid by merchants have fallen but consumers have seen no reduction in the prices that they pay. And where merchants have been permitted to impose surcharges on credit users, the surcharge can, and often does, substantially exceed the interchange fee cost. It is not for nothing that merchants have spent millions trying to push interchange fee regulation through Congress.
In addition, Shapiro suggests that interchange fees are excessive in light of the “transaction and processing costs of using credit and debit cards.” But his estimation of these costs is dramatically off-base. Not only does he appear to exclude the cost of the delay between the time merchants receive payment (almost immediately) and when consumers pay their bills (at the end of a billing cycle), he ignores what may be the most significant single cost of consumer credit operations (and corresponding benefit to merchants): the cost of credit loss. Continue Reading…
I’m sure it’s an honor just to be nominated.
A recent opinion from Judge Posner cites our very own Josh Wright (Joshua D. Wright & Todd J. Zywicki, “Three Problematic Truths About the Consumer Financial Protection Agency Act of 2009,” Lombard Street, Sept. 14, 2009, available here) (by the way, the essay has drawn a few comments, my favorite of which is definitely the one titled, “are you stupid or scumbags[?]”).
The opinion is vaguely interesting touching as it does on the propriety of short-term, high-interest loans, but the holding rests on an analysis of the commerce clause so is pretty well beyond my ken.
At issue is an Indiana statute that purports to apply Indiana’s restrictive usury laws to consumer contracts executed outside the state, but with creditors that have advertised or solicited sales within Indiana. The Indiana usury statute at issue constrains consumer loan interest to terms under which “the ceiling is the lower of 21 percent of the entire unpaid balance, or 36 percent on the first $300 of unpaid principal, 21 percent on the next $700, and 15 percent on the remainder,” with an exception for payday loans. Such terms would preclude payday loans if they weren’t excepted under the statute and does preclude car title loans of the sort at issue in the case. The court rules that the restriction on out-of-state transactions is impermissible under the constitution and strikes down the Indiana law.
The interesting part (to me) of the case, and the part where Josh (and Todd) are cited, is where Posner discusses the law and economics and related scholarship of car title and payday loans. He doesn’t really come down on one side or another in this debate except to aver that Indiana has a colorable interest in protecting its citizens from “predatory lending,” if it so chooses. It seems to me that he gives too much credit to the behavioral-economics-based arguments on the “predatory lending is, well, predatory” side of the debate, but he really doesn’t wade into the debate. Nevertheless, Josh and Todd get their mention (Todd actually gets a couple of mentions) in this section, and kudos to them (and to FinReg21, where their essay appears) for drawing Posner’s attention.
Oregonians, my fellow residents of the Beaver State (and, by the way, the only state in the Union with a different image on each side of its flag), voted yesterday to increase top marginal income tax rates and corporate tax rates, including minimum corporate tax rates and the addition of a tax on gross receipts. I’m still waiting for Paul Krugman to decry the anti-stimulus measure, but I doubt it will happen (he’s a partisan hack, you know). But there is a “bright” side: Capital (human and otherwise) flight from Oregon to its neighbors (including income-tax-free Washington to the North and foundering behemoth California to the South) will help those states with their economic troubles! <sarcasm>And fewer people and less economic activity in Oregon will be good for spotted owl habitat, after all</sarcasm>. I just hope the local beer industry survives. I don’t know what I’d do without the ability to drown my sorrows in a few bottles of Terminal Gravity IPA.
What would a day without payment cards be like? I had a glimpse into that just this morning, when my usual Bay Area morning routine of using my prepaid card to get a cup of Peet’s coffee and then check email and news was changed up by the coffee shop’s downed Internet connection. I was the store’s first customer for their 5:30 am opening, and the two young clerks were visibly nervous because they couldn’t take my merchant’s prepaid card and credit cards had to be processed with an old-school “knuckle-buster” device. From my usual seat in the corner I watched as the barista duo struggled to keep up with even the slightest trickle of customers, and the line of customers quickly backed up until the work crew doubled to four as sleepy-eyed and bed-headed backup workers arrived on the scene following emergency calls for their help. If we eliminated prepaid and credit cards, everything would change for merchants and retail customers. I’ve all but eliminated checks from my daily existence, but until I heard the now-unfamiliar sound of change jingling in my pocket I hadn’t realized how infrequently I use cash.
Now, there may be valid, empirical arguments that for some transactions cash is more efficient (see this post and comments for a brief discussion and for the key academic references). And, of course, in the situation Jim describes, with time and regularity the burden of cash transactions would surely be reduced (the Second Law of Demand). But the merchant-driven campaign against payment cards, in full recognition of the reality that making payment cards more expensive for consumers will lead to an increase in the use of cash and checks, is problematic. For many, in fact, the move to cash is a feature, not a bug. Suze Orman is (indignantly) leading a “Back to Cash Movement.” Merchant advocacy groups tout cash and checks as a cheaper choice–for consumers–than credit cards.
But costs like the ones described by Jim in his post are not well-accounted for, as Todd Zywicki discussed in detail in his second interchange symposium post here. Presumably the merchants who are advocating for greater use of cash in an effort to avoid interchange fees believe that the costs of cash born by merchants are less than interchange fees. I’m not sure they are right given the costs to retailers of dealing with cash (from theft to accounting to transportation to security to employee time, etc., etc.), but let’s grant that revealed preference carries the debate (assuming the “back to cash” advocates really speak for all retailers . . . which is doubtful). But what about the costs to consumers and taxpayers? What about the costs of going to the ATM, maintaining precautionary checking account balances, budgeting without monthly statements, not having a float or access to consumer credit? What about the huge and growing cost of not being able to engage in online commerce? And what about the costs of increased tax evasion and enforcement, printing cash, protecting it, and transporting it? Merchants are extremely critical of the cross-subsidy from cash customers to credit card customers they purport to see in the imposition of credit card interchange fees that raise retail prices for all consumers. But what about the subsidy ofrom people with high time costs to those with low time costs when the costs of processing cash are imposed on all customers who have to wait in longer lines?
These costs may not be dispositive, but merchants and their advocates pretend like they don’t exist, and without knowing anything systematic about the magnitude or incidence of these (and many other) costs blithely advocate yet another round of government micromanagement of important parts of the economy.
Meanwhile, in the UK, banks are actually moving to eradicate paper checks completely:
There are many more efficient ways of making payments than by paper in the 21st century, and the time is ripe for the economy as a whole to reap the benefits of its replacement.
Our friend and University of Chicago law professor, Omri Ben-Shahar, fresh off a run participating in our credit card interchange fee symposium, has penned a guest post following up on our ongoing discussion of annual fees:
There is no annual fee for shopping at Wal-Mart, but there is an annual fee for shopping at Sam’s Club. Is there a consumer protection problem here?
Some people think that credit card issuers are acting badly by not charging annual fees, thus luring consumers into services that involve back end costs. By this logic, should retail stores like Wal-Mart be condemned for NOT charging annual membership fees, luring customers in, and making profit at check out lines? In fact, some stores probably charge a “negative” fee. High-end retailers (Whole Foods, Neiman Marcus) provide a pleasant shopping experience and free samples. Low-end retailers distribute discount cards. They all charge these negative “membership fees” because they surely make up for it at the cashier. Should these retail techniques be regulated to protect consumers?
I find it puzzling why some retailers and service providers charge annual membership fees and others don’t. Why, for example, do wholesale clubs like Costco and Sam’s Club charge memberships while retail department stores do not? I am sure there is much to be learned from finding the answer to this puzzle, but I don’t think it has anything to do with consumer protection. Consumers are doing quite well in either format, and if there are problems of deception they are independent of the annual fee dimension.
Adam Levitin has a blog post up responding to Todd Zywicki’s recent WSJ editorial on credit card interchange fees. As most readers know, this is a topic of significant interest around here, and Josh blogged about Todd’s op-ed just yesterday. I’m on vacation so I’ll be brief, but I thought Adam’s post was so wrong it necessitated my getting off the beach for a reply. Adam writes:
Todd is right that consumers are happy to see annual fees go away, but the disappearance of annual fees wasn’t a freebie for consumers. It came about as part of a shift in the credit card business model whereby upfront fees were replaced with backend fees that have lesser salience to consumers when the consumers decide which cards to carry and use. This was a move that was made to increase revenue for card issuers (or put another way, to siphon off more consumer surplus); it was not a charitable act. The disappearance of annual fees is an important innovation, but I think it is a stretch to call it a pro-consumer innovation, when it is viewed contextually.
The disappearance of annual fees was a step in the democratization of credit (or put another way, the decline in underwriting standards). Whether this was a good thing is unclear. It certainly increased consumer’s borrowing ability and choices, and might have led to a substitution from secured installment credit to unsecured revolving credit. But greater ability to borrow and more borrowing choices are not necessarily good. They are only good to the extent that a consumer is capable of repaying the increased credit line and making informed choices among credit options. Both of those are questionable for many consumers.
Adam’s incessant claims that consumers are idiots, fooled time and again by rapacious capitalists, is tiresome. The behavioral econ/behavioral law and econ literature just doesn’t support these strong claims. Yes, there are some interesting theories. No, there is no empirical proof, and there are plenty of counter-explanations. There are some experiments that support these claims. And they have been called in to question (sorry I can’t take the time to link right now, but we’ve discussed the behavioral literature quite a bit on this blog). Todd’s competition story is the Occam’s Razor argument here and unsupported claims to the contrary should be scoffed at.
The “contextual” reality is that the “backend” fees that have replaced annual fees are born by a small fraction of cardholders and are avoidable, as opposed to unavoidable annual fees born by all cardholders. These backend fees have likewise been falling in magnitude and incidence over recent years. And meanwhile, they act to make borrowing more expensive for the helpless people Adam and other self-appointed consumer advocates claim to want to protect from themselves and less expensive for those who don’t “need” Adam’s protection (scare quotes because I’d say no one “needs” Adam’s help). On Adam’s own terms this should be a feature, not a bug, and it is arguably more efficient, lowering consumer credit costs for everyone.
Adam’s view that these backend fees make credit seem cheap to profligate spenders in a way that annual fees do not is absurd. Maybe the first time, but I’d have to say that fees imposed directly when repayment is not forthcoming, for example, and showing up on a statement at the very moment they are incurred should have much more “salience” than annual fees imposed once a year with no relationship in time or magnitude to any behavior on the part of consumers. Meanwhile, there is a whole industry of protectors warning consumers of the dangers of over-extending, and very few daytime talk shows warning of the perils of annual fees. I’d wager the behavioral fee is much more “salient” than the annual fee.
This is the problem with the behavioral literature on which Adam relies: It is a set of non-rigorous, just-so stories that can be tortured to support any a priori policy view. The bottom line is that credit card markets have seen falling fees, increasing benefits (rental car insurance, airline miles, purchase protection, etc., etc.) and structural changes that respond to consumer preferences. The just-so story that would turn this into a story of corporations preying on ignorant consumers is insulting and unsupported.
First, Peter Klein:
I am bewildered. But, more than that, I am angry. I can’t count how many news accounts I’ve seen about the poor, struggling homeowners who can’t make the monthly mortgage payment, are about to be foreclosed, and risk losing the family home, yard, white picket fence, and piece of the American Dream. But I haven’t heard one word about the poor, struggling renters, the ones who scrimped and saved and put money away each month towards a down payment, who kept the credit cards paid off, stayed out of trouble, and lived modestly, and thought that maybe, just maybe, the fall in housing prices meant that they, finally, could afford a house — maybe one of those foreclosed units down the street. These people are Bastiat’s unseen. For them, Obama’s housing plan is a giant slap in the face. To hell with the prudent. Party on, profligate! Now that’s what I call moral hazard.
Here’s Tyler Cowen (with lots of other links to other economists’ reactions — some much more favorable):
We should not be helping people stay in their homes if their mortgage payments are at 43 percent of their income. (The bill requires banks, in such cases, to lower interest rates until monthly payments are at 38 percent of income. The government then steps in to lower payments to 31 percent of income.) I don’t feel moral outrage (although it is morally outrageous), I just don’t think it is a good use of money. I also wonder how it works when your income is quite variable year to year. Are they sure there is no way to game this? It will in the short run prevent some (enough to matter?) foreclosures. But it won’t keep up the long-term price of homes or prevent eventual foreclosures when the home has negative equity. It adjusts interest rates on the payments, not principal on the loans (thank goodness). Most of all it is a bad precedent which we will live to regret. It is a significant move away from the idea of commercial decisions based on contract.
My colleague Todd Zywicki offers an empirical rebuttal to the Warren-Tyagi “Two Income Trap” hypothesis which asserts that families with two incomes end up more leveraged than families with single incomes and more susceptible to negative economic shocks than otherwise for a number of reasons, including, e.g. counterproductive bidding for housing, child care expenses, etc. The hypothesis is designed, in part, to explain the increase in bankruptcy filings in the US during the 1980s and 90s. After a bit of number crunching, Zywicki concludes that the largest difference between the typical family in 1970 and 2000 is the tax burden not the mortgage expenses:
expenses for health insurance, mortgage, and automobile, have actually declined as a percentage of the household budget. Child care is a new expense. But even this new expenditure is about a quarter less than the increase in taxes. Moreover, unlike new taxes and the child care expenses incurred to pay them, increases in the cost of housing and automobiles are offset by increases in the value of real and personal property as household assets that are acquired in exchange.
Overall, the typical family in the 2000s pays substantially more in taxes than in their mortgage, automobile expenses, and health insurance costs combined. And the growth in the tax obligation between the two periods is substantially greater the growth in mortgage, automobile expenses, and health insurance costs combined.