The middle class is shrinking. Those in power have run up enormous debts on public credit while shoveling most of the money into private pockets. The corporations that have benefitted from this borrowing binge, meanwhile, leverage the global trade system to transfer their profits beyond the reach of national governments.

Meanwhile, we have been told lies by Democrats and by Republicans, divided into artificial camps and led into debates that are either irrelevant or so dramatically scripted that we fail to realize every choice leads to the same result: the dismantling of the social framework that defined and sustained the opportunity of the last century. National mobilization of resources has given way to radical individualism under a narrative that, in the wealthiest nation in the world, we must always expect less.

In this tumultuous time, we search for a way forward - a new Square Deal for the American people.

Wednesday, April 18, 2012

Why do we borrow so much? Simple.

Borrowing in America is practically a national hobby.

Unlike the moralizers on Web forums who go on and on about how they made it through life with no debt, the vast majority of Americans are deeply in debt.  (By the way, there are some people who do start off with relatively little and yet continue to live debt-free, but statistics on how few of these there are suggest that most of the folks on the forums are lying.)

Why do we borrow? 

As Households

Housing is generally a household's biggest expense.  For those who "own" (a term that I place in quotes because true ownership comes only when clear title is delivered), that means a mortgage.  Renters don't have mortgages but do pay rent, and in either case, a large chunk of household income goes to paying cost of housing.

With what's left of our incomes after housing, we then have to provide a whole lot of things for our families, including food, clothing, medicine (healthcare), transportation, education, childcare, and entertainment.(1)

Of course, even before all of that, we have money withheld for taxes.  America's largest expenditures are for Social Security and Medicare, two programs that ironically don't do anything for the vast majority of the people who are in positions to actually pay for them.  That's because both programs are primarily for retirees, people who are no longer working.

Between the money that goes to taxes and the money that goes to housing, a lot of us don't have enough left to meet our expenses.  Since we generally start off earning relatively little, borrowing allows us to get the things that we need and repay the cost later, when we make more money.  Of course, because every bit borrowed takes an ongoing slice out of our income, we typically find that the raises we get over time only barely keep pace with the rising costs of servicing our debts.

As a Country

The choices that we have made as individuals explain why we keep accumulating debt at the national level. 

As mentioned earlier, Social Security and Medicare are our biggest expenses, and they are paid for by people who don't actually collect their benefits.  Because populations grow, the best way to sustain the benefits promised by these programs is to have a growing population of workers paying into them; given enough workers, tax rates stay the same, and there's no need to borrow.

Increasing the workforce, however, requires a growing population.  America is among a very few developed nations that actually has an adequate birthrate for this purpose but consistently pursues policies that undermine it:
  • Social conservatives tout the merits of women staying home to raise children, an approach that regardless of merit (because childcare is very expensive; it tallies next after housing for most families) has the effect of removing large numbers of people from the workforce.
  • Fiscal conservatives rail against the costs of public childcare and social services, creating behavioral problems that lead to less stable youth populations and more crime.
  • Militarized police forces and harsh sentencing for non-violent offenders grow the ranks of felon-zombies who can't get most of the jobs that pay well enough to matter in terms of taxes.
Through it all, seniors—who vote more consistently than anyone else in the country—continue to demand their promised benefits (which they promised to themselves when they were younger), and because they are strapped with debt that they can barely afford as it is, they work diligently to block any notion of increasing taxes (which would put their personal finances in precarious positions).

Try any path through the maze; they all lead to the same outcome.

The costs of Social Security and Medicare therefore continue to rise without being abated by either higher rates or larger workforces, so we do what any household facing too little income to meet immediate needs does: we borrow the difference.  There's nothing surprising about that. 

What should surprise all of us are the extent to which we debt-strapped Americans keep envisioning ourselves as debt-free paragons of virtue, and the extent to which policy makers keep squandering the benefits of a growing population—a rare gift in the developed world.

1 Some people balk at the idea that households without adequate income think of entertainment at all.  This is nonsense.  Certainly, there are limits, but when one says "entertainment," he or she may not be referring to expensive pursuits.  However, entertainment has been a necessary part of life for as long as humans have existed.  It can't be discarded.


  1. Great article! I'm happy to say that my only current debt is student loan debt, but then again - I've yet to get a mortgage.

    Do you think that our industries are growing sufficiently to sustain an ever-increasing workforce, though? It seems like many jobs are being automated, outsourced, or just plain cut out of the picture.

  2. I don't know. I agree with you that we're seeing major structural changes in the economy, especially as not only production but also processing and analysis jobs become automated. Law firms, for instance, have shed thousands of positions because research that used to take armies of junior lawyers is now done by customized Google apps.

    The thing is, capitalism is predicated on the notion of the "expanding pie" -- that there's not a finite amount of wealth to be divided but rather a dynamic model in which everything keeps growing. If/when that ceases to be the case, a great many things will rapidly break down.