Why Are We "Digging Deeper Into Debt"?

This past Sunday (July 20, '08) The New York Times had another front page story about the ravages of indebtedness. The heading, “Given the Shovel, Digging Deeper Into Debt” signaled the usual way the story was to be framed: irresponsible borrowers, greedy and unscrupulous lenders. The story’s “human face” was a perfect setup: a slightly overweight divorcee who likes “handbags and knickknacks” and was a “dream customer for lenders” until everything went bad. Serves her right, was the message. But even she was recruited to chastise the fellow borrowers. Her observation made the paper’s “quote of the day”:

I think a lot of people in this country have a lot more debt than they let the outside world know. I worked in retail for five years. And men, women would open up their wallets to pay and the credit cards that were in some of the wallets just amazed me.

Left unmentioned in the article was the cause of the indebtedness, the reason that the US population has suddenly turned irresponsible, unscrupulous and greedy. Yet, the cause is there in plain view for everyone to see. It is the declining income of the workers that has not kept pace with the inflation since the early 1970s. Bloomberg News:

The current U.S. economic expansion is the first in 60 years that may end before many Americans have recovered from the last slowdown. Annual family incomes adjusted for inflation have grown just 0.8 percent since the end of 2001 even as the economy expanded an average 2.7 percent a year, leaving households little cushion to absorb higher food and fuel prices.

That is why the US households borrow, overstretch themselves and then go bankrupt. Irresponsibility and greed play very little role in this march towards pauperism. By way of a comparison, in 2006, five largest investment banks – Goldman, Merrill, Morgan Stanley, Lehman and Bear Stearns – paid $35 billion in bonus. That was more than the gain of 39 million US workers in the period 2001-06. There is vast data on the subject. Google it and see for yourself.