This series of lectures, published in book form, shows Margaret Atwood at her lively best. It is reminiscent of James Burke’s series ‘Connections,’ in which he traces a seemingly random path through history, choosing the most interesting and unexpected road at every juncture. In some ways, Atwood’s consideration of debt occurs in an even richer world, since it includes literature, mythology, and religion among the kind of paths that can be followed.
The first section of the book examines debt in a historical and conceptual way: considering different kinds of debt (financial, moral, spiritual, etc) as well as different modes of repayment. It considers the ethics of being a borrower and a lender, as well as the consequences that can arise for those who happen to be near either. Atwood’s examination highlights how lenders can err both in being too harsh on their debtors and in being too stingy with their money – both the vicious loan shark and the penny-pinching miser are culpable. The book discusses revenge as a special form of debt repayment, as well as the complexities that arise when debts are being incurred by states and princes. All this is made quite entertaining by the cleverness of the connections being identified, and the teasing and humorous tone of the narration.
The second section is an exposition of our current state of deep indebtedness, and a recognition that the greatest and most threatening of those debts are ecological. While Atwood’s updated Scrooge story includes asides on the unjustness of the World Bank and IMF, as well as the risks associated with fiat currencies, her primary concern is with the wanton destruction of the natural world that has been accelerating since the industrial revolution. She singles out overfishing, biofuels, deforestation, overpopulation, soil depletion, and climate change as examples, painting a general picture of extreme human recklessness. The redemptive vision is one based around neo-hippie victory: renewable power, an international agreement to stop climate change, and organic food for all.
The concluding story feels a bit trite, really. Any corporate baron paying the slightest bit of attention would already be jaded about the messages from the ghosts Atwood’s Scrooge Nouveau receives. That said, and while the literary merits of the first section exceed those of the second, it is appealing that this is a book of action as well as contemplation. It is hard not to agree with the thrust of Atwood’s argument. By all means, let’s increase the fairness of the global financial system and curb humanity’s self-destructive ways. This book contributes to that project by provoking a great deal of thought about the symbolism and meanings of debt. We will need to look beyond it for concrete ideas about how to overthrow or convert those who favour the status quo and thus bring about a sustainable (appropriately indebted) new order.
I say ‘appropriately indebted’ because the book makes a strong case that we can never really be out of debt. As social entities, there are always tallies of obligation between us, and nobody can ever be said to be sitting perfectly at the balance point of these transactions. Indeed, given the way they are denominated in different currencies (honour, favours, wealth), seeking such an outcome is hopeless. What we can attain is the position of borrowing and lending rightly, with forgiveness and an awareness and concern about the consequences for those around us and the wider world.
In any case, the book is highly topical, informative, and makes for a quick and rewarding read. It is telling that, while other books have been sitting around my apartment for months, I received this one in the mail yesterday and finished it today.
I listened to one of Atwood’s lectures on Ideas. I found the general thrust of her argument interesting, but the Scrooge story was cliched and annoying.
Margaret Atwood is a great Canadian and a very interesting human being. In her fiction, she is not afraid to put forward controversial and challenging ideas. I especially admire her widespread knowledge and beautiful use of language. I read the “payback” book with my book club and it certainly generated a heated discussion. I recommend it as an informative, intelligent and fast read.
Did you find the Scrooge parable at the end of this book convincing?
“I say ‘appropriately indebted’ because the book makes a strong case that we can never really be out of debt. As social entities, there are always tallies of obligation between us, and nobody can ever be said to be sitting perfectly at the balance point of these transactions. Indeed, given the way they are denominated in different currencies (honour, favours, wealth), seeking such an outcome is hopeless. What we can attain is the position of borrowing and lending rightly, with forgiveness and an awareness and concern about the consequences for those around us and the wider world.”
This is an interesting point. However, is it not possible for everyone to hold a surplus? In a certain sense it is impossible because if I have a surplus, someone must owe that surplus to me. I.e. if I have savings, the bank owes me those savings. However, if the Bank actually holds all of those savings, they owe it to me in the sense that I “owe” you this book I’ve borrowed on the IMF. In a certain sense this book is a loan, liability, or deposit (It’s a loan I’ve taken from you, it’s a liability (asset) you hold against me, it’s a deposit you’ve made to me). However, I’m not fretting about my ability not to pay it back – strictly speaking, it’s a loan but not one which speculates on my future ability to earn capital to repay it.
While it seems tautological that we can never be all out of debt if you define all deposits as liabilities and therefore loans, this seems to miss the point – real debt is debt that I can’t pay back today in full if something came up. It seems quite logically possible, in this sense, that there could be a society with no debt – although this would demand probably a commodity currency (I actually think beans is the best option for that. They last ages, you can eat them, if you split it between different beans like the metal money system is split between gold, silver, and sometimes others, you could have a full-protein currency!), and full reserve lending only.
Tristan,
Atwood is considering debt in a way that goes quite beyond the financial. For instance, she considers the possibility that just being alive means we have a debt to nature which is ‘repaid’ when we decompose back into it.
As social beings, we are arguably also inescapably indebted. Living in a group of humans, or even primates, it is not plausible that you could perfectly balance all the favours you have ever done against all the favours that have ever been done for you.
In any case, you should really consider reading this book. It can easily be managed in a few hours, and it includes a lot of interesting examples and illustrations.
Atwood’s book considers a lot of interesting ways in which loans can be secured and repaid, including pawning, hostages, unusual forms of debt transfer, selling your family, selling yourself into slavery, and killing people.
Some reviews of Payback:
A cultural history of debt – The Economist
Debt and the Shadow Side of Wealth – The Spectator
Margaret Atwood sees red in Payback – The Georgia Straight
Debt shall have its dominion – The Guardian
Payback’s a bitch – Salon
I see,
Interesting sounding book. Still, I think we could have a lot more savings, a lot less debt.
Especially with a bean-based currency. Don’t you think its a fantastic idea? We can literally starve the poor by taxing them. LITERALY!
Still, I think we could have a lot more savings, a lot less debt.
I’ve been working on that myself. I am paying down student loans fairly aggressively, and am no longer using my credit card for normal purchases.
That said, I am definitely glad I was able to take on that student debt in the first place.
Tristan, have you seen Delicatessen (http://www.imdb.com/title/tt0101700/)? If not, its worth every beans you might have on your cupboard.
Sorry for the diversion.
I don’t consider credit card to be debt if I pay it off each month. It’s more like a free service.
Looks good, but I have about 25$ worth of beans.
I actually think this bean-based currency is a good idea. You wouldn’t want to hold all the food at home, of course, you’d have bean-certificates. Sure, we’d have to build some expensive storage facilities – but instead of storing paper, we’d be storing food people can eat – the incentive to produce stores of food would guard against drought.
Although, we might see massive inflation if the production of beans were to increase substantially – but I can’t see any reason why making beans a currency would increase the volatility of the price of beans.
I would argue for full-reserve Bean lending (i.e. if I deposit 100 beans in the bank, they can’t use that deposit to make loans. They must make loans using their savings0, for the simple reason that a run on the banks would then never be a problem – and runs might occur if a food shortage is predicted.
The best thing about this system is, as we get richer, we have inflation (because rising prices increases the imputus to grow beans) – but unlike inflating a paper currency or gold, inflating actually makes us richer as well as poorer – we become poorer in what we can exchange our beans for, but we are richer in the sense that we have more beans – the currency has a non-exchange value and a universal one. Gold has a use-value too, but, not that relevant to most people, especially starving ones – only the exchange value matters to them.
Does anyone see a big problem with a bean-based currency? Basically, the theory is to affirm the logic of the gold standard, but include a use-value which is universally applicable.
I attended one of Atwood’s lectures and am reading her book this week. I’m not all the way through it, but so far I’m largely disappointed. My feeling is that it’s unfocused, reminiscent of this cartoon.
The only problem with lumping “favours” in as a form of debt is that by doing so, it axes the possibility of altruism. Can’t someone do something without some form of payback in mind?
I am thinking a better definition of “debt” is borrowing with the intent of paying it back. Or from a lender’s point of view, lending with the intent of getting paid back. Anything else is “giving” rather than lending.
I like the idea of growing money in trees but we are sure to increase the money supply and inflation enormously with every harvest ;-)
I don’t consider credit card to be debt if I pay it off each month. It’s more like a free service.
Lately, I have come to see this as a bit of a ruse. While it can be exactly as you describe – a free source of financing – I do think that using cards in this way makes people spend more than they otherwise would.
In terms of avoiding unnecessary purchases and maximizing savings and student debt repayment, it seems best to make virtually all payments using cash, even though my credit card offers 1% cash back.
Does anyone see a big problem with a bean-based currency?
Without import controls, it could leave you very vulnerable to outside speculators. Someone could chop down a swathe of Indonesian rainforest, grow a trillion soy beans, then buy up Toronto.
AT,
Her book struck me in a similar way, though I quite enjoy that some of random association thought process. That’s why I like Burke’s Connections so much.
Tristan, having your currency based on a single commodity, as opposed to a whole economy (which is close to what we are asking central bank to do along with adding a small to the money supply to manage inflation at a low and predictable level) seems a bit risky given that the prices of different commodities tend to experience important fluctuations relative to each other depending on market conditions and market dynamic.
Sorry again for this diversion Milan.
The global economy is also worth a lot more than the world’s current bean storage. Using them as currency would seriously inflate their value, eliminating their usefulness as a food source.
It’s the same problem with gold. Around the world, there are 142,000 tonnes of gold in total. If you converted all the world’s currency into a gold standard, the value of that gold would increase very significantly. That would hand heaps of money to people who happen to have some already, and it would choke off productive uses of gold in electronics and so forth.
Sorry again for this diversion Milan.
Generally, I am happy to see conversations branch out and evolve naturally. When they wander enormously far away from the topic of the post that prompted them, I occasionally suggest that the conversation move to a more relevant post.
BuddyRich,
Atwood discusses gifts and concludes that you do owe something back: namely, gratitude. Also, the fact that it is considered rude to sell a gift indicates that receiving one often carries social obligations.
But that only applies if the lender expects gratitude for the gift… someone could conceivably give something to someone with no expectations at all.
By the same token, reselling a gift is only rude if the giver is offended, though I don’t know how much of a “gift” it is if there are strings attached, meaning that perhaps the giver did expect something from the giving after all, if not gratitude, then I don’t know what, but something, not making it a gift at all. Semantics perhaps, but I wouldn’t call something a gift if there is some sort of expectation placed upon me in receiving it, I call that an obligation.
I suppose the question is, is giving something to someone with no expectations at all possible (certainly it’s contra to basic human nature of quid pro quo or even the golden rule)? I’d like to think it is.
Even granting that it is rude, its only rude when done immediately, ie. “regifting” but by the same token selling that well used sweater uncle Bob gave you years ago at a yard sale is hardly rude, socially or otherwise.
I think the key to resolve the issue of the gift is to look at both giving and gratitude as being of the same nature: they both reinforce social relations.
A gift is not simply the transfer of an object, it is a meaningful act (at least in most cases). Selling the gift immediately after receiving it is accepting the object but at least partly rejecting the meningfulness of the act itself.
Giving to strangers or out of charity is entirely different of course. But then who really cares if the gift is exchanged for something else?
There was a MASH episode in which Major Burns gives a box of chocolates to orphans as a charitable gift, then becomes angry when he learns that the director of the orphanage sold them on the black market for cabbage money. He does eventually decide that doing so was appropriate, however, given how much longer the cabbage would sustain the children for.
When it comes to gifts, there is another possibility to consider: sometimes, it is not that the receipt of a gift creates a debt for the recipient to repay. More often, a debt is repaid through the giving of a gift. You bring a bottle of wine to a dinner party and a gift to a wedding. You repay friendship through birthday and Christmas gifts, etc.
Three passages from Payback
FEBRUARY 6, 2009
Milan,
I think you are right. A bean based currency is flawed because beans actually account for a small amount of GDP. And there was a good point about Gold made – if we went on a full reserve Gold standard, then all the gold in the world would have the same value as everything else – which would increase the value of gold, and that would be unfair.
I still believe, though, that without a commodity based currency it is impossible to have a savings-rich society without those savings being someone else’s debt. And, that’s just not good enough.
If you switched instantly to a bean currency, first the value of beans would skyrocket. Then, as people frantically grew them, it would crash.
Eventually, it would stabilize at a level where it takes the same amount of land, capital, and labour to produce a house worth of beans as it does to produce the house. Half the world’s wealth would be in bean form, and people would have to cart them around in dump trucks.
Beans are (a) too low value per unit mass and (b) too easy to make to serve as a good currency.
In what way our current system differs so much from a commodity based currency? Won’t people be able to borrow beans (or any other commodity) to finance their own project in your bean based economy?
In our current system isn’t the currency generally based on an economy wide basis (as opposed to a single commodity)? That we have a currency based on everything that this economy produces? If it was not, wouldn’t we have problems such as hyperinflation or dangerous deflation? At least, isn’t it what we are asking the central banks to achieve?
“In what way our current system differs so much from a commodity based currency? ”
In a commodity based currency, the bank guarentees that you can exchange your currency for a specific amount of some commodity. For example, if you had exchanged a 1913 dollar for gold the day before they went off the standard for personal exchange, that dollar’s worth of gold would now be worth about 30$.
Whereas, if the US had stayed on a commodity based currency, the money supply could not have doubled 5 times. At best, assuming a growth of 2% per year in the gold supply, it could double every 35 years. However, it’s worse than that, it would only be true that the money supply had only doubled 5 times if the economy had not grown. Specifically speaking, the difference in the rate of change of the size of the real economy and the money supply has been high enough for the value of currency to be halved 5 times in a hundred years.
Imagine if we hadn’t gone off the standard, is it impossible that the economy could have still grown at 2-3% per year? Given that gold mining can increase the supply of gold at about that rate, deflation wouldn’t necessarily be a problem. It’s simply that our dollars, nominally, would be worth a lot more. Doesn’t sound like a disaster to me.
I’d like to point out again, for about the million unresponded time, that Greenspan believes the Gold standard, conservative monetary policy period of civil war until 1913 was the most beneficial to the US economy. That’s the policy which we consider impossible today.
While it’s not an adequate response to that question, it is worth noting that Greenspan is a tad discredited these days.
And are the policies which Greenspan has been discredited for pursuing closer or farther from the pre-1914 US monetary policy compared to Bernakee’s policies?
It’s pretty clear he’s been discredited for solving the dot.com bubble by inflating the housing bubble. Right now Bernakee is doing the exact same thing, inflating a bond bubble. It’s not complicated, it’s not even particularly interesting.
Tristan, what about access to credit? this was at the center of my question but was not very clear in the way I wrote my comment.
And do you think, as I do, that in our current system the money supply is largely based on the size of the economy itself? If so, isn’t it a more appropriate way to control inflation and other economic factors (no matter what’s your belief on them per se)?
I badly worded my last comment, it should read: isn’t a better way to put value in money and therefore more helpful in helping us controlling inflation and other aspects of our economy?
Still badly worded but I hope you can read between the lines…
Personally, I have always found Greenspan’s Ayn Rand philosophy very dubious.
It was easier to set concerns about it aside when it seemed he had a good macroeconomic record.
Milan,
You’re dismissal of Greenspan’s opinion is completely ad-hominum. The kind of macro-economic policies pursued in the period he considers the best, bear very little similarity to the policies her pursued as Fed Chairman. And, they are very different from what Ayn Rand would have pursued. Also, someone’s predictive analytic powers (i.e. being able to develop new models that actually work) is not identical with their analytic powers of historical analysis (what were the effects of certain policies, were they, in retrospect, the right ones to pursue).
Also, why do you think Greenspan has now come out and admit that that period was the best? Basically, because that’s now what he wishes he had done. If he could go back, and he’s basically said this, he would not have prevented a recession after the .com bubble by blowing up the housing bubble. He would have pursued more conservative monetary policy. There is a difference between making predictive mistakes, and what that says about someone’s intellectual powers, and being able to analyze those mistakes after the fact and say, in retrospect, what one should have done.
But, more than that, Greenspan is obviously not an idiot in a simple way. So, if he thinks the pre-Fed period was the best, someone who’s not an idiot believes that, so the view can’t be dismissed as a view only held by people not to be taken seriously, which you effectively have done.
Related to this post, I saw this book at a bookshop today. I was going to buy it, but it was fairly expensive. Can I borrow it from you?
This makes me realize how useful it would be if it were cheap to mail books. Everyone could have their entire library in a blog file, and people could request to borrow books from each other, all using the postal service.
Yes, it was an ad hominem attack. That being said, people care about Greenspan’s opinion largely because of who he is; the flip side of the ad hominem attack is the assertion that his expertise and experience makes him more likely to be correct when discussing economic issues.
Which book do you want to borrow?
Again,
I didn’t mean to cite Greenspan as someone who was correct all the time. I meant to cite him as a serious person, whose opinion is not to be easily dismissed. Also, since he was the Fed chairman, it’s a bit strange for him to say the best period of US monetary policy was the period after the abolishment of the 2nd national bank and before the establishment of the federal reserve. This is exactly what all the “abolish the fed” people say. Isn’t it interesting that he agrees with them?
The Case for Bankers
They’re not all villainous scum. And besides, we really need them.
By Jacob Weisberg
Posted Saturday, Feb. 7, 2009, at 7:13 AM ET
Not long ago, American culture abhorred lawyers, mistrusted journalists, and envied bankers. Today we ignore lawyers, pity journalists, and despise anyone connected to Wall Street—for undermining their own companies, trashing the global economy, and being insanely overpaid. Public sentiment has judged the lot of them guilty as hell and sentenced them indefinitely to a mid-six-figure stockade.
Isn’t it interesting that he agrees with them?
A bit, perhaps. Obama’s second nominee for Commerce Secretary voted earlier to abolish that department. Sometimes, people take jobs they would rather see eliminated, because they don’t want someone who thinks the job is important at the helm.
In any case, I am not going to argue about economics for the next while.
Audio slideshow: The road to Hooverville
The Wall Street Crash of October 1929 was a trigger that quickly plunged the United States from economic prosperity to the depths of the Great Depression.
Millions of Americans lost their jobs and homes, and many were forced to live in shanty towns, nicknamed Hoovervilles after the country’s president Herbert Hoover.
Through this collection of archive photographs, Professor David Reynolds, presenter of Radio 4’s landmark series America, Empire of Liberty looks at what happened when the United States went from boom to bust.
The feature starts with a vignette about an expat named Karen Andrews, who now lives in her Range Rover, camped in the parking lot of one of Dubai’s finest hotels. Her troubles began when her husband was diagnosed with a brain tumor, lost his job, and the couple quickly slipped into debt. Snip:
“One doctor told him he had a year to live; another said it was benign and he’d be okay. But the debts were growing. “Before I came here, I didn’t know anything about Dubai law. I assumed if all these big companies come here, it must be pretty like Canada’s or any other liberal democracy’s,” she says. Nobody told her there is no concept of bankruptcy. If you get into debt and you can’t pay, you go to prison. “When we realised that, I sat Daniel down and told him: listen, we need to get out of here. He knew he was guaranteed a pay-off when he resigned, so we said – right, let’s take the pay-off, clear the debt, and go.” So Daniel resigned – but he was given a lower pay-off than his contract suggested. The debt remained. As soon as you quit your job in Dubai, your employer has to inform your bank. If you have any outstanding debts that aren’t covered by your savings, then all your accounts are frozen, and you are forbidden to leave the country.
“Suddenly our cards stopped working. We had nothing. We were thrown out of our apartment.” Karen can’t speak about what happened next for a long time; she is shaking.
Daniel was arrested and taken away on the day of their eviction. It was six days before she could talk to him. “He told me he was put in a cell with another debtor, a Sri Lankan guy who was only 27, who said he couldn’t face the shame to his family. Daniel woke up and the boy had swallowed razor-blades. He banged for help, but nobody came, and the boy died in front of him.”
Ditch your [student loan] Debt
By mecran01 on studentloans
A short video explaining the new Income Based Repayment going into effect July 1st Your student loans might be more manageable soon.
400 Percent APR—Is That Good?
Do people take out payday loans because they’re desperate—or because they don’t understand the terms?
By Ray Fisman
Posted Wednesday, July 22, 2009, at 1:27 PM ET
There’s been a lot of finger-pointing lately about who is to blame for the untenable financial circumstances of many American families. Among the usual suspects—Wall Street quants, fly-by-night mortgage brokers, the households themselves—none is an easier target than payday lenders. These storefront loan sharks are portrayed by their detractors as swindlers preying on the desperation and ignorance of the poor. A payday backlash is already well underway—Ohio recently passed legislation capping interest rates at 28 percent per year, and the Military Personnel Act limits interest charged to military personnel and their families to 36 percent. The average payday loan has an annual interest rate of more than 400 percent.
Payday lenders themselves argue that they’re being victimized for providing a critical social service, helping the hard-up put food on the table and cover the rent until their next paychecks. Charging what seem like usurious interest rates, they claim, is the only way to cover the cost of making $100 loans to high-risk borrowers.
Why is Canada Blocking Congo Debt Forgiveness?
“on June 29, Canada attempted to block a decision by the World Bank and International Monetary Fund (IMF) to cancel the overwhelming majority of the DRC’s roughly $8 billion debt.
In spite of Canada’s objections, the World Bank and IMF approved DRC’s debt cancellation two days later. But Canadian diplomats delayed the process long enough that the announcement missed celebrations of the 50th anniversary of the country’s independence from Belgium which had ruled Congo with legendary violence while extracting its mineral wealth. The DRC’s debt, widely considered to be “odious”—consisting of loans to illegitimate rulers—had accumulated through their history as a colony of Belgium, then through the years of the Mobutu dictatorship and on to the present. The loans rarely benefited ordinary people in what is one of the most impoverished countries in the world. Even after one of the IMF’s own reports during the Mobutu era showed the loans were being misused and would likely never be repaid, the lending programs were not only kept in place but boosted to higher levels.
Why would Canada want to interfere with relieving a poor country from illegitimate debt?”
“Over the past year, the government of the DRC canceled three of First Quantum’s [A Canadian mining company] mining concessions, worth about $1-billion, as part of a review of contracts signed during the tumultuous period of conflict at the end of the 1990s. Canada retaliated on the company’s behalf through the G8 and international lending institutions.
Maurice Carney, Executive Director of the Friends of the Congo, a Washington DC-based advocacy group, is asking why Canada was not worried about illegality in the Congo before the recent cancellations; illegality on the part of the companies themselves. He points to a 2002 UN Security Council report called the “Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth of the Democratic Republic of the Congo,” that showed connections between foreign mining companies, including First Quantum, and the ongoing conflict in the DRC, the deadliest conflict the world has seen since the second World War.
“The United Nations clearly stated that these companies that were involved are fueling the conflict, illegally exploiting Congo’s wealth, and have violated OECD Guidelines,” says Carney. “Yet neither Canada, nor the G8 have issued any major declarations against these corporations.””
http://www.dominionpaper.ca/articles/357
This infographic on the U.S. student loan system is pretty damning. First, student loans are apparently subject to a much harsher legal regime than other types of loans. Second, the quasi-governmental entity Sally Mae apparently profits from penalties for non-payment, collected through the General Revenue Corporation, which they own. All the while, the federal government is securing the debt, protecting lenders against default.
Many of today’s Americans feel as indignant about the debt as that 1940s housewife did. But they are just as profligate as their government. Their mortgages and other debts also amount to around $13 trillion, almost 120% of their annual disposable income.
The most remarkable thing about that figure, though, is not how big it is, but that it is smaller than it was two years ago. For over 60 years after the second world war, household debt moved in only one direction: upwards. Then, in the second quarter of 2008, it started to fall—not just as a proportion of income, or after allowing for inflation, but in everyday dollars and cents. Between March 1st 2008 and June 30th 2010 households reduced their debts by $473 billion. Businesses and banks joined in later. Although the federal debt displayed on the Times Square clock is ticking remorselessly upwards, the true national debt, including households, banks and firms, is now lower than it was in the first quarter of 2009.
More important, policymakers’ obsession with cutting deficits in the short term has deflected attention from the more important question of how to do it. Some countries are setting about it the right way. France, for instance, is pushing through pension reform; and in Britain three-quarters of the fiscal adjustment will come from spending cuts. But America, if Mr Obama has his way and the Bush tax cuts for high earners are eliminated, is heading for the worst possible outcome: raising taxes on income and capital but failing to trim the country’s pension liabilities and rising health-care costs.
Above all, the story of the co-op tells you that economic slumps are not punishments for our sins, pains that we are fated to suffer. The Capitol Hill co-op did not get into trouble because its members were bad, inefficient baby sitters; its troubles did not reveal the fundamental flaws of “Capitol Hill values” or “crony baby-sittingism.” It had a technical problem—too many people chasing too little scrip—which could be, and was, solved with a little clear thinking. And so, as I said, the co-op’s story helps me to resist the pull of fatalism and pessimism.
Children of the revolution
SIR – You analysed the various possible relationships and disconnects between income inequality and financial crises (Free exchange, March 17th). One could speculate about an additional contributing factor: the cultural revolution of the 1960s. A commitment to one’s job, living within one’s means and saving for future needs were all deemed passé in the bosom of post-war affluence, and those values eventually morphed into irrational expectations, self-indulgence and immediate gratification.
Without that change in values American households might have tackled the onset of middle-class wage stagnation with a return towards austerity. Instead, now programmed to expect an affluent lifestyle as manifest destiny, households fuelled their insatiable consumptive urges with two incomes, working wives and mounting credit.
The government, bless its heart, unable politically to deal with income inequality, used debt as a means of sustaining middle-class prosperity. It all worked for quite a while.
J.A. Frascino
Upper Saddle River, New Jersey
But the mere fact that Mr Dorrit was behind bars indicates that official attitudes to debt had hardened by the 19th century. The insolvent debtor was a deadbeat who had failed to keep his side of the bargain; going into debt was a moral failing.
Modern sympathies lie much more with the borrower, as is perhaps inevitable after decades in which consumer credit has boomed. Most people are in debt at some stage of their lives; indeed the life-cycle theory of consumption states that it is virtually inevitable. If you can borrow when you are young and can look forward to a rising future income, you can smooth your spending over your lifetime.
Governments may be lectured about being spendthrift, at least by right-wing politicians. But businesses and consumers are positively encouraged to borrow. Indeed, when debt growth slows, as it has in recent years, an air of panic develops about how to get it going again. Oddly enough, given the prevailing climate, the policy of quantitative easing, as pursued by central banks, has made it easier and cheaper for governments to fund their deficits without doing a lot to stimulate business and consumer lending. The difficulty in obtaining credit from conventional banks has probably helped spur the growth of payday lending—along with the squeeze in real incomes that has resulted from high unemployment and sluggish wage growth.