Indebtedness is not moral weakness

Robert Reich makes an important point in this post. Most Americans’ failure to save is not because of extravagance and impulsiveness and greed for material goods, as tempting as that logic is. And the housing collapse and the credit crisis is not the fault of overreaching consumers. (Schadenfreude is always tempting; it feels good to think that people are getting what they deserve rather than being puppets of forces beyond their control.) The current downturn is not some kind of cosmic payback for being too preoccupied with blandishments of consumer culture.

The “living beyond our means” argument, with its thinly-veiled suggestion of moral terpitude, is technically correct. Over the last fifteen years, average household debt has soared to record levels, and the typical American family has taken on more of debt than it can safely manage. That became crystal clear when the housing bubble burst and home prices fell, eliminating easy home equity loans and refinancings.
But this story leaves out one very important fact. Since the year 2000, median family income has been dropping, adjusted for inflation. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes.
It’s not as if the typical family suddenly went on a spending binge—- buying yachts and fancy cars and taking ocean cruises. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like gas, heating oil, food, health insurance, and even college tuitions all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it’s more accurate to view it as an ongoing struggle to stay afloat when the boat’s sinking.

Stagnating wages—and they will probably continue to stagnate, as David Leonhardt details here, prompted consumers to take on debt; it can’t entirely be blamed on Americans adopting a standard of living that was beyond them. One of the struggles, I think, about complaining about consumer culture is figuring out a way to argue that a transformation in spending habits is not tantamount to taking a step backward in terms of living standards. The voluntary simplicity movement, when it is forged with a sense of righteous snobbery, seems the most viable option right now.

Of course, with rapidly declining consumer spending pitching us toward a nasty recession, there will be calls for stimulus packages to increase consumer spending. And giving the money to consumers to spend immediately, rather than save for the long-term and improve their overall economic position, will only exacerbate consumerist ideology—the marketing and the advertising and the belief that owning more things is the good life and so on. This doesn’t mean we should fall into the neo-Hooverite trap Matthew Yglesias warns of —it means that falling aggregate demand should perhaps be countered not by increased spending by individual consumers but by government investment in projects that provide better life opportunities for us all.

Added: Ezra Klein linked to this Demos study, which used a survey of credit-card debtors to conclude, “Quite simply, what distinguishes low- and middle-income households with relatively high levels of credit card debt from those with lower levels of debt is chance and misfortune.”