Consumer debt crunch and division by two

[Rakesh Bhandari]

Thanks to Doug and Jordan for the patient and helpful replies to my
queries. What I don't understand is how consumer debt can increase
effective demand in the long term or how the credit card has become a proxy
for Keynesian programs. Obviously all consumer debt (credit cards,
installment plans) does is increase present purchasing power by deducting
both the principal and interest payments over so many periods from future
purchasing power. Over the long term then consumer debt engenders financial
flows to those rentier classes with a presumably lower marginal propensity
to consume and should thus have the effect of increasing savings, no?

That is, the interest payments, which are counted as a personal outlay, of
course undermine the ability of those households that most need to save to
set income aside;  but from this it does not follow that the use of credit
has decreased the total amount of national savings. In particular, I don't
follow this argument made by Medoff and Harless in The Indebted Society:

"The rise in consumer debt is mirrored by a fall in consumer savings. This
is a major development...the economy in general worse off for neglecting
its savings... For the economy as a whole, savings provide a domestic pool
of funds from which to draw for investment in future production and
growth." p. 18

Why has the use of consumer credit reduced that pool of funds used for real
investment? Income the working class may have saved ends up via interest
payments in the accounts of a few rich creditor households more likely to
save that financial flow, no?

What is agitating me is the idea drummed into us that the working class in
this country does not save enough. Well, yes, income employed workers may
have saved is instead expended to pay off interest charges but that's a
contribution the working class makes to the savings of the rentier class.
The working class is saving more than recognized but not for itself.

And my other question: what are the political effects on the working class
from this high ratio of debt service to income?  Having already purchased
the goodies and realizing that even a few months of missed debt service can
add tremendously to the debt burden, the working class seems ever less
free. Workers may be changing jobs, but they can't hold out long enough to
find a better job or risk being blacklisted and thus take full advantage of
even a tight labor market.  A few missed payments and  that manageable debt
will have grown to sink them. Does this have anything to do with the
present passivity of the working class?

best, rakesh