TARP watchdog Elizabeth Warren has played an important role in fighting abuses of the federal handout, but the knock on her is that she’s too much of an ideological activist, and that she’s in over her head in the role.
Warren is a bankruptcy lawyer and Harvard professor, with a particular interest in how the financial system hurts the “little guy.”
That’s fine, and it’s not a bad thing to look at how the maze of insurance and mortgages and all that stuff look to the person signing their name on the dotted line — where they’re getting confused, etc. That being said, a professor’s work should strive towards some kind of dispassionate “truth”, whatever that means.
And it seems in her latest work — a study claiming that medical costs now account for a stunning 70% of bankruptcies, up from 50% last time she looked — is just pure nonsense.
Megan McArdle (who you may know from dropping the hammer on Edmund Andrews) rips it to shreds, noting that what Warren ignores it that bankruptcies on the whole have come down (significantly) over the last 6 years, and then 70% of the new number would still be 50% of the old number, so even medical-related bankruptcies have been coming down.
Are Warren, et. al. unaware that bankruptcies fell by half? No bankruptcy analyst could possibly be unaware of this fact; it has been the most talked-about phenomenon in the bankruptcy area since the 2005 law was passed. Moreover, they’re clearly familiar with the filings data, because they use it to make their point:
The number of filings spiked in mid-2005 in anticipation of the new law, then plummeted. Since hten, filings have increased each quarter. They are likely to exceed one million households in 2008, representing about 2.7 million people.
What’s left out here? That in 2001, 1.45 million households filed for bankruptcy. In 2007, that number was 727,167. Had their paper done the basic arithmetic, readers would easily have seen that their own numbers imply a decrease in medical bankruptcies, from about 750,000 to slightly over 500,000. Yet their paper does not merely ignore this fact; it uses language that seems deliberately designed to conceal it. I invite any of my readers to scan the paper for any hint that medical bankruptcies had fallen significantly over 6 years.
This is elementary social science. A huge change in the composition of your sample needs to be noted. It certainly should not be artfully disguised. If the 2005 bankruptcy form made it more difficult to file bankruptcy, the people who still file bankruptcy will largely be those who are forced to it by events totally beyond their control. Medical bankruptcies seem to fill that bill.
Yet even so, their own work shows medical bankruptcies falling in the years between 2001 and 2007, which would seem to invalidate, not support, the claim that half of all bankruptcies in 2001 were driven by medical events beyond the household’s control.
Now, some might defend Warren and say, that, well if her numbers are correct, it still shows that medical costs are the dominant contributors to bankruptcy, even if they’ve fallen along with the total number of filings. That may be so, but it’s not actually saying that much. Because the problem she’s trying to address is bankruptcy — the issue is the devastating financial impact from medical bills (not the same thing). The latter is definitely concerning. Bankruptcy is symptom. But by taking misleading bankruptcy numbers, she can overstate how bad the medical bills situation is.
McArdle also did a followup post here, which is worth reading, emphasising just how significant the question is, particularly coming from the person who’s also playing such an important role in the bailout.
On the other hand, does TARP really matter anymore? Most of the banks are paying it off, and beyond that, did you notice how little attention was paid to the hearings of the new Neel Kashkari, Herb Allison? That’s right: None. Nobody cares anymore. TARP: RIP.
Warren’s study is embedded below: