David Brooks: The Debt Indulgence

From the Opinion Pages of the New York Times, by David Brooks, 4 June 2012:

Every generation has an incentive to borrow money from the future to spend on itself. But, until ours, no generation of Americans has done it to the same extent. Why?

Why? Because policy does nothing to prevent it. Policy only encourages it. Still today, Federal Reserve policy is to grow the economy by getting everyone to borrow more. This must change.

A huge reason is that earlier generations were insecure. They lived without modern medicine, without modern technology and without modern welfare states. They lived one illness, one drought and one recession away from catastrophe. They developed a moral abhorrence about things like excessive debt, which would further magnify their vulnerability.

Try to focus, David Brooks. You are not doing economics here. Your stories are irrelevant.

In case you didn't notice, in the 1990s and 2000s we had a growth industry dedicated to making money by helping people out of debt. So even then, we had "a moral abhorrence about things like excessive debt". Some kind of abhorrence, anyway.

Our character is not the problem. Our policies are the problem.

Recently, life has become better and more secure. But the aversion to debt has diminished amid the progress. Credit card companies seduced people into borrowing more. Politicians found that they could buy votes with borrowed money. People became more comfortable with red ink.

It is policy, David, plain and simple. There is no need to make up these stories.

Today we are living in an era of indebtedness. Over the past several years, society has oscillated ever more wildly though three debt-fueled bubbles. First, there was the dot-com bubble. Then, in 2008, the mortgage-finance bubble. Now, we are living in the fiscal bubble.

Wait a minute -- the fiscal bubble? No, you misuse the word "bubble".

In this country, the federal government has borrowed more than $6 trillion in the last four years alone, trying to counteract the effects of the last two bubbles. States struggle with pension promises that should never have been made. Europe is on the verge of collapse because governments there can’t figure out how to deal with their debts. Nations around the globe have debt-to-G.D.P. ratios at or approaching 90 percent — the point at which growth slows and prosperity stalls.

It all goes back to the increase in the tolerance for debt.

No, David. As Rex Nutting says, excessive private debt created the problem. But what it all goes back to is policies that encourage credit use and the accumulation of debt.

Private debt and public policy. Focus on these two things. Everything else follows.

Democrats and Republicans argue about how quickly deficits should be brought down. But everybody knows debt has to be restrained at some point. The problem is that nobody has been able to find a political way to do it.

No, David. The problem is that nobody considers the economic way to do it.

What about private debt, Brooks?
  1. Excessive private debt leads to inadequate growth.
  2. Inadequate growth leads to excessive public debt.
What about private debt?

The era of indebtedness began with a cultural shift. It will require a gradual popular shift to reverse. Today’s Wisconsin vote might mark the moment when the nation’s long debt indulgence finally began to turn around.

What about private debt, fool?