Whoa, you like to think that you’re immune to the stuff, oh, yeah
It’s closer to the truth to say you can’t get enough
You know you’re gonna have to face it, you’re addicted to love
—Robert Palmer, Addicted To Love
Hi. My name is John Q. Public, and I have a borrowing/spending problem.
As we approach the silly spending season, it struck me as eerily timely to see my Tuesday Houston Chronicle running multiple stories and columns dealing with debt and dependency on others.
A front page piece discussed local lawmakers’ initiative to take on the paycheck lending industry. To be sure, these folks are basically loan sharks, but in Texas at least, their business is perfectly legal; they make “advances” against future paychecks on a two-week turnaround, charging exorbitant fees and interest in the process. But no one is making people sign up for these things. The article tells story after story about people taking out one loan, then a second to pay the first, and so-on—and they even admit that “I knew what was going on.” Yet somehow it’s always the lender’s fault when irresponsible adults sign up for agreements to borrow money they can’t pay back.
The article also suggests that it is somehow unfair that payday lenders charge higher fees in Texas where they are unregulated than they do in, say, Oklahoma, where the fees are capped. How so? Do borrowers have some right to be loaned that money (and to be loaned that money at the same rate charged somewhere else)? What if the lenders just decided not to lend in Texas at all? The fact that the market—when left to its natural state and not artificially limited by legislative price controls, which is what fee caps are—will bear a certain price is neither fair nor unfair. The market is what it is, and the transaction is voluntary; if you don’t like the fee, don’t take out the loan.
A second front page article discussed welfare, and made the point that fewer people in Texas are receiving welfare payments today than 10 years ago. Of course, the Chronicle spins it differently, saying that “cash aid for poor Texans fell while poverty rose,” as though having fewer people on welfare is a bad thing. The main gist of the article is that it is unfair that the qualifying income threshold in Texas is lower than in other states, because it is depriving people of access to welfare payments.
And finally there was the usual column from Paul Krugman, who finally came out of the closet and said out loud what he’s said implicitly for years: deficit spending is OK because the government can just print more money. Never mind the economics, for Krugman there isn’t even a moral issue with either borrowing money you simply never intend to pay back, or with incurring a debt that will have to be repaid with devalued dollars (that’s what happens when you just print “money”) by future generations who had no say in the borrowing.
What’s really troubling here is the common thought thread running through all three pieces. Whether you’re talking about personal loans, welfare, or government debt, there is a growing worldview that you are simply entitled to live off of other people’s assets. As a society we’re infected with this kind of thinking that rather than live within our means, we can simply take from others (whether at a personal micro level or at a national macro level) in order to fund a lifestyle we cannot afford.
Life’s pretty good here in the U.S. relative to the rest of the world, even if you’re “poor.” As I’ve pointed out before, even the majority of the “poor” in the U.S. have computers, Internet access, color TVs, cable or satellite service, and cell phones. Over 99% of all U.S. households have a refrigerator and TV. 75% have air conditioning. The median household—not to mention the wealthy—has more than one flat-screen TV, and more than one car.
But at what cost?
This idea that we can live lavishly beyond our means is dangerous and unsustainable. Yet it’s almost ubiquitous. Consider that today total personal debt in U.S. is around $15.9 trillion. $13 trillion of that is mortgage debt, fueled by federally-mandated unsafe lending practices designed specifically to facilitate home ownership by people who by definition couldn’t afford it (hence the mortgage crisis of 2007-08). Another $847 billion is credit card debt. Per citizen, the cumulative total is about $50,000–$3,000 more than our GDP per head, meaning we spend more than we produce, and in fact our average personal debt alone is right at our median income.
It wasn’t always like this.
In 2000, just 12 years ago, total personal debt was about $8.4 trillion, roughly half of what it is today. $6.7 trillion of that was mortgage debt, again roughly half today’s figure. Credit card debt was just $676 billion. Per citizen, we each owed on average $29,000, 40% less than we do today.
If we look back further, today’s picture looks even worse. In 1968, total US credit card debt was about $8 billion in current dollars; just 1% of what it is today. In 1950 (I couldn’t readily find 1968 numbers, but you’ll get the idea) total US mortgage debt was a little less than 15% of GDP, but by 2004 it had risen above 60% of GDP. Today it’s about 87%.
Our combined private and public debt is an unimaginable $32 trillion, by orders of magnitude the largest debt any group of human beings has ever owed in the history of mankind. And yet we continue to borrow and spend, totally oblivious to the hole we are digging for ourselves and generations to come.
We have become, both individually and collectively, addicted to debt. And unfortunately, our economy is now based almost entirely on this kind of debt spending, making it a house of cards; we’re creating the illusion of an economy by spending—both micro and macro—money We. Do. Not. Have. And what’s lost on the debtor-victim mongers and the Krugmans of the world is that incurring debt means you’ve taken money from someone else; sooner or later they’re going to want it back (and, I think most of us would agree, if you borrowed it from them you have a moral obligation to pay it back), typically with interest.
Where’s that money going to come from?
You’re not going to get it from the people taking out paycheck advance loans—if they had the money they wouldn’t be doing that in the first place. You can’t get it by taxing the rich—as I’ve pointed out before, you could tax everyone making over $200,000 at 100%, take every dime, you’d net less than $2 trillion, which would barely cover the interest. You could walk away—that’s basically what Greece is trying to do. You could only service the interest—again with borrowed money—until some undefined future date that never comes. Or you could take the Krugmanian approach of simply printing money to pay it back. But each of these “solutions” is just another form of the same inherent evil of taking from others.
If you default you’ve breached your agreement and taken directly from the lender. If you delay, you shift the burden of repayment to future generations, literally mortgaging your children and grandchildren to finance your lack of self-control. If you just print money, the increased supply necessarily devalues the currency, and the inevitable inflation that results is essentially a tax; although you don’t see it in the form of a bill from the IRS, you nevertheless surely pay it as it becomes more expensive to buy bread and gas. And although this “tax” hits everybody, the really sick part is it’s regressive in that it has a greater impact the poorer you are: I can afford a $10 loaf of bread, but a single mother working cleaning office buildings can’t.
We as individuals and as a country need to do some serious looking in the mirror. The first step to recovery is admitting you have a problem.
BENGHAZI UPDATE: It’s been 81 days since the attack on sovereign U.S. soil that killed four Americans, apparently while the White House watched in real time, and the President still hasn’t addressed the American people on it.