The American Dream Revisited

August 16, 2009 by  
Filed under Loans and Borrowing

Long time readers know that Mr. ToughMoneyLove has been a harsh critic of government intervention into the homeownership business, particularly its cheerleading of unqualified buyers into sub-prime mortgages.  I’ve written several posts on the topic including:  Homeowner Bailouts Destined to Fail, Sub-Prime Memories are Short on Capitol Hill, and Taxpayers Crushed by the Destructive Push for Home Ownership. If you think I’m wrong about the failure of government involvement, read the data cited in those posts.

Too many folks “buy” a house, thinking that it’s an essential component of the American Dream. What they end up buying is a mountain of debt that they can’t repay today, tomorrow. or ever. Even if they can afford the mortgage, they naively overlook the other costs of home ownership. The dream becomes a nightmare.

Now Thomas Sugrue a professor of history and sociology at the University of Pennsylvania is setting the record straight on the evolution of the American Dream. In an essay in the Wall Street Journal, Prof. Sugrue makes historical and practical case that the new American Dream is renting. According to the professor:  “We are a nation of homeowners and home-speculators because of Uncle Sam.”

Bingo.

Again according to the historical record, before the government got involved:

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words “keep out of debt” or “pay as you go” appeared in countless advice books. As the YMCA told its young charges, “If you can’t pay, don’t buy. Go without. Keep on going without.” Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn’t lose its sweetness because someone else held the title.

Thanks to government meddling since then, personal finances have been dictated by the demand for bigger homes and bigger loans. Where the middle class was once stigmatized by debt, now being a renter is looked down upon.

So what does foreclosure rate in the American Dream? A badge of honor? The personal finance Purple Heart?

If you read anything today, read Professor Sugrue’s piece. I was particularly struck by his concluding citations to comments made by another historian:

James Truslow Adams, the historian who coined the phrase “the American dream,” one that he defined as “a better, richer, and happier life for all our citizens of every rank” also offered a prescient commentary in the midst of the Great Depression. “That dream,” he wrote in 1933, “has always meant more than the accumulation of material goods.” Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.

Brilliantly pure, isn’t it? Where is that wisdom now?


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22 Responses to “The American Dream Revisited”
  1. Rick Beagle says:

    “Prof. Sugrue makes historical and practical case that the new American Dream is renting”

    First of all, I do agree that people need to earn their homes, and understand the financial impact that purchasing a house can cause.

    But forgive me for disagreeing with the good professor, but it seems to me that the American Dream has always been about being the landowner, the business owner, or the innovator versus the serf? I would also suggest that the good professor has not been privy to the fluctuations of rent, and may not understand that home ownership is often less of a financial burden than renting over the long term. Furthermore, real estate over the long term appreciates unlike a car where the value of a lease could more easily be argued.

    We have had a mortgage bubble burst, like many before and sadly, many more indubitably in our progeny’s future. I find it troubling that so many are willing to throw in the towel on those that would seek to better themselves at the risk of everything. People, though you are too old to remember the dream, who are a lot like you.

    I do agree that these folks need to be accountable for their failures, but to deny them their dreams, and their hopes is irresponsible both practically and fiscally. How many here had everything that they have given to them? If you weren’t born with a silver spoon shoved up your butt, then more than likely you took the risks of youth to create that which is you now. Is it the curse of old age that we forget our own struggles, and find that we now dismiss the gall and gallantry of “risking it all” as inappropriate behavior?

    I, for one, will not lower the bar of the American Dream for my children. And when it comes to conversations over a warm meal, I will extol the virtues of Michael Lane over the research of the good professor.

    Peace.
    Rick Beagle

  2. MasterPo says:

    “I do agree that these folks need to be accountable for their failures, but to deny them their dreams, and their hopes is irresponsible both practically and fiscally.”

    Who is being denied the dream?

    If someone bites off more than they can swallow there are consequences they must live with. If that means they have now poor credit and harder or more expensive to borrow, or if it means needing to wait many more years, or if it does mean not being able to attain the goal, so be it. It’s a dream, not a given.

  3. Rick Beagle says:

    MasterPo,

    I think the point of the article was that the American Dream should be scaled back, and that people should not want a house with all the fiber of their being. And yadda yadda yadda, we both know that we disagree about the role of various parties in this meltdown, but does it really mean that we should discourage home ownership as is suggested in this article?

    Rick Beagle

    PS Did I sound NY’ish with my yadda? :-)

  4. MasterPo says:

    Rick,

    I didn’t interpret Mr. TML’s article as suggesting to discourage home ownership.

    Rather to put the common sense back into it. IOW, buying a home is a business transaction same as buying a car or anything else. It’s not a given that everyone who wants a home *should* be able to buy one, nor is it the gov’s job to see that it happens (as what has happened with the real estate bubble) without regard to the realities of who is borrowing the money.

    The reality is that for some people the dream of home ownership will, for whatever reasons, remain just that – the dream and not a reality.

  5. MasterPo says:

    ps- Keep working on that Manhattan slang. 😉

  6. lurker carl says:

    My take on the article is a bit different, it is a reality check for chasing desires.

    Just because you want something doesn’t mean you should buy it, especially if you can’t do the affordability math. That’s how the dream turns into a nightmare, many people can not curb their enthusiasm for spending borrowed money far beyond their capacity to repay it. Even if some lender is stupid enough to let you.

  7. MasterPo says:

    Carl,

    While I agree with you, I think the bigger problem was the government stepping in and forcing banks to create all sorts of loan progeams to help “the poor” and the “under privilaged” achieve the ‘dream’ of home ownership.

    Even now with the real estate bubble burst and foreclosures at a record high government idiots are *still* talking about programs for making the ‘dream’ of home ownership more “affordable” for lower income people. IOW, they STILL want to encourage people who can’t afford a home to buy one! :-O

  8. Terry Pratt says:

    So THAT explains why this morning there was a discussion “Is the new American Dream renting?” on CNBC.

  9. MasterPo says:

    Terry,

    IMO it’s also the first step in ultimately doing away with the home mortgage interest deduction. :(

    If the American Dream no longer includes owning your own home then it isn’t fair (so the pols will say) that some people can deduct part of their living expenses (i.e. mortgage interest) while others (renters) can’t deduct anything.

    Besides, Obama *must* raise more taxes and doing away with the mortgage interest deduction will cost tax payers billions$$$. More for his pocket.

  10. Rick Beagle says:

    MasterPo,
    You have any proof of that assertion? Any links that show Obama is about to raise taxes by doing away with the mortgage interest deduction? If not, could you please quit just making stuff up? As of today there are zero bills pending congress (supported by the WH) that would raise taxes in this manner, or any other manner. Could we please quit with the scare tactics, and focus on something akin to the truth?

    Peace.
    Rick Beagle

  11. MasterPo says:

    Rick,

    Please go back to school and take some reading comprehension courses.

    I said it was my opinion that was Obama’s ultimate goal. In his 2010 budget he already *did* elminate the mortgage deduction for “the rich” (incomes over $208,000 – although I thought he said $250k was “the rich” threshhold?).

    Also take some courses in recent history. Another of your heros President Clinton tried to do the same. He called the mortgage deduction “wellfare for the rich”. He didn’t succeed but tried.

    When you have a projected $10 TRILLION dollar deficit you aren’t going to pay that down selling savings bonds.

  12. Rick Beagle says:

    MasterPo,

    I read your comment correctly. You are just pissed because I caught you yet again just making stuff up. Again, there are zero bills pending congress (maybe I overlooked something?) that even remotely support your assertions.

    I don’t mind you speculating, but with you right winged nut jobs we have to be extra diligent. The Rethugs are on a roll lately and let’s just say the truth is NOT part of their message.

    Death panels? I don’t know which is more pathetic, the Rethugs who blatantly made this up, or the people that actually believed it…. Regardless, we need to stay on our toes, Lord knows what will come out of that camp next.

    Peace.
    Rick Beagle

  13. MasterPo says:

    I speak my opinion about Obama leading up to eliminating the home mortgage interest deductions and you twist that into death panel talk.

    Gotta love liberals.

    Take 2 Ritalin’s and call me in the morning.

  14. Rick Beagle says:

    You seem to be confused. I mentioned another outrageous lie to explain my sensitivity to your fear mongering.

    Gotta love right trash.

    Unhook from Faux and grow a brain.

  15. MasterPo says:

    That’s the problem with liberals. Can’t think more than one step ahead. That’s why they don’t make good chess players.

    It is a fact that radical social change NEVER happens over night. Even your vaunted Obama has said on record (there are lots of videos out there about it) how single-pay (i.e. gov-only healthcare) may take 10-15-20 years to totally take over the country but you gotta start somewhere. Same with Barney Frank.

    If you read directions that said STEP-1 douse yourself with gasoline, STEP-2 light a match, you don’t need a step-3 to say “Now you will be burned alive” to know that will be the result.

    Consider this: Where is the cost of healthcare? IOW, who is the money spent on healthcare? The healthy or the sick?

    I sure hope you said the sick because by definition if you’re healthy you don’t need any medical care.

    So where do you think all the cost savings will fall – on the healthy or the sick?

    Will the real rocket scientist please stand up…

  16. Terry Pratt says:

    MasterPo:

    You said:

    “If the American Dream no longer includes owning your own home then it isn’t fair (so the pols will say) that some people can deduct part of their living expenses (i.e. mortgage interest) while others (renters) can’t deduct anything.”

    As someone with no hope of buying a home, I have been saying as much for decades: it’s not fair, it distorts the market, it distorts policy (ultimately making policy even more unfair to renters), and repealing the unfairness is long overdue.

    In Michigan – where I lived for some years – the school property tax rate on rental property is four times the rate on owner-occupied primary residences. Now tell me how fair that is, and how badly it distorts home and rental prices.

    p.s. in the context of all this homeownerist unfairness to renters, i was not at all surprised when congress voted a homeowner bailout…and nobody else should have been surprised either.

  17. Terry Pratt says:

    MasterPo:

    You said:

    “That’s the problem with liberals. Can’t think more than one step ahead. That’s why they don’t make good chess players.”

    Check out my multi-step reasoning that economic expansion is bad for unskilled workers:

    1) economic expansion/job growth leads to greater household formation (e.g. unemployed twentysomething living with parents gets a job and rents his own pad)

    2) unskilled workers are generally passed over for promotion in favor of skilled workers

    3) economic boom does little to increase low-end wages since a surplus of unskilled workjers exists

    3) greater household formation leads to increased renbtal occupancy

    4) increased rental occupancy reduces rental vacancy rates

    5) reduction in rental vacancy rates leads to higher rents

    6) higher rents + sluggish low-end wages make unskilled workers worse off than they were before the economy expanded

    p.s. i played chess in high school

  18. Terry Pratt says:

    MasterPo:

    Have you noticed promoters saying things lately which are technically true but misleading?

    Sebelius got my attention last week saying somnething – I forget what – technically true but misleading.

    Now Obama has gotten on that same train…

    He said there is no mandate in the bill to cover abortions. Of course not, his Health Choice Commissioner (another czar?) will ensure that abortions are covered.

    And he also said that the bill does not provide health insurance to illegal aliens. That also is true, but illegal aliens will still get health care and taxpayers will pay for it.

    Did you see the clip of McCaskill’s town hall meeting where she listened to the crowd…”What?…You don’t trust me?”

    Yes, millions of Americans don’t trust Congress, they don’t trust Obama, they don’t trust the anonymous people writing the bill, and they certainly don’t trust people like Ezekiel Emanuel anywhere near health care policy.

  19. MasterPo says:

    Terry,

    Regarding home ownership, this is one of the rare situations where I do believe the gov has some interest in promoting individual private home ownership (that includes condos and co-ops). People who own homes are generally community makers. They generally stay in the same community for long periods of time. Thus, they have a vested interest in the long term health and prosperity of the community. Renters as a group (yes I know there are long term renters) are more transient. Since they can (and often do) move at anytime they have less of a stake in the community than those who’s lives are physically rooted there via home ownership. I know that’s a broad-brush statement and I’m sure you, Rick etc can toss out many examples of that not being the case. But if you look at the overall sides of home owners vs. renters you’ll see it holds true.

    Regarding your comments on economic growth and jobs, I have to toss the ball make to the unskilled worker. At some point in life you as an adult have to wale up and smell the coffee. IOW, get yourself some kind of training or gather all the experience you can from work and try to move at least a bit up in the economic world. There are all kinds of excuses why someone first gets into a low paying unskilled job and stays there for 30-40 years. Some may be valid explanations. But not justifications. There’s an old saying: “A rising tide lifts all ships.” But if you’re sitting on a brick you’re not going to rise.

    As for your comments on Obama and healthcare, sounds like you agree with me. Thanks. :)

  20. Terry Pratt says:

    MasterPo:

    Shouldn’t low-income people have the OPTION of buying real homes in sizes they can afford?

    All I can afford is a 400-sf home on a 2,000-sf piece of land.

    Shouldn’t I have that option? Especially when the lack of the option often leads to lifetime penury.

  21. Terry Pratt says:

    MasterPo said:

    “It’s not a given that everyone who wants a home *should* be able to buy one, nor is it the gov’s job to see that it happens (as what has happened with the real estate bubble) without regard to the realities of who is borrowing the money.”

    Au contraire, I believe that everyone who wants a home *should* be able to buy one in the size they can afford, and that government should stay out of artificial size restrictions which allow only unaffordable (and thereby unattainable) options.

    I’m specifically NOT saying that anyone should be able to buy a home they can’t afford; only that government needs to stop with the housing mandates (size etc) which make homes unaffordable.

  22. Terry Pratt says:

    MasterPo,

    You say you support generally government interest in promoting homeownership. As one who has been economically harmed (soaring rents) and ultimately displaced by rising neighborhood homeownership [—> rising rents], I note that government is taking sides, choosing winners and losers, and you should especially understand the issues that entails. (What, it’s okay in homeownership but not in healthcare?)

    I lived in the same community almost 30 years, and in the same house for 15 years. Before that, profit-seeking landlords kept pricving me out every year or two. So clearly I did not *choose* to be transient.

    What protection is there for renters want tgyo stay put and make community?

    I go so far as to say that renters are *negative stakeholders* in their community: as my community prospered, I became gradually worse and worse off. (Why? Because as the community prospered, home prices and rents soared, depleting more and more of my meager income every year or two.) Generally, a community’s rising tide does not lift the boats of renters, whose upward redistribution of income (to their landlords) is accelerated.

    Let me ask you this: When a zoning decision concerning apartment development is to be made, and opinions from the community are considered, whose opinion (if anyone’s) should be given greater consideration: a 25-year renter who wants to buy a home and stay, or a homeowner who arrived six months ago from another state? I ask because I was on the losing side of such an issue.

    Now I have no marketable skills, and no money with which to return to school. And I’m too old to be taken seriously as an applicant for an apprenticeship. So I’m not seeing a lot I can do to lift my boat.

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