Bourgeois economists have the nastiest things to say about the working class: first, it was the skills shortage which explainined its relative and absolute decline; now its the credit financed consumption binge which is draining the national pool of savings, undermining investment, growth and future properity. Both calumnies reduce to one--short-time horizons or present time preference: not enough foresight to forgo present income for education presently and greater marginal productivity later and not enough sense and responsibility to put income away for a rainy day and future generations (the latter accounts for the popular tolerance of government deficits which rob future generations as well). The explanation for social problems derives from a simple ahistoric psychological law applied to the impulsive mass; and public policy is then to be used to manipulate this mass, given its inherent propensities.
At any rate, I smell a rat in the following argument of Lester Thurow's:
"Consider credit cards. From the perspective of capitalism consumer credit is like sex between consenting adults. It is no one's business except that of the lender or the borrower. Yet if everyone can get what they want instantly without having to save and unused credit card balances can replace savings for a rainy day (as they have), why shold anyone save? [because the limit on the card has already been reached? though the interest payments make substantial savings difficult/--rb]The individual goal is to maximize consumption--not savings and investment[in bourgeois economics, the latter are carried out as well to maximize consumption, discounted for present time preference, no?rb] "In the past, without consumer credit, car loans or home mortgages (all three of which didnty really exist until after WWII and in 1950 still only amounted to 52 % of personal income) if someone wanted to buy a washing machine, a car, or a house, and they have to save the money necessary to buy that itime or they did not get to enjoy a washing mahcine, a car, or a house. With the development and widespread availability of consumer and mortgage credit (in 1994 outstanding loans equaled 107% of disposable income, anyone can have anything they want while paying for it after they have it rather than before they have it all. "Whether the consumer pays before or after he gets what he wants is critical. If consumers accumulate funds before purchasing, their savings can be used to make productive investments until they have saved enought to buy the desired items. If consumers replay loans after purchasing, then other's people savings have to be advaned to them and they effectively substract from the pool of loanable funds available for investment [after interest payments, consumers will have more than replinished that pool of savings, though it will have been redistributed to the rentier class; moreover, financial institutions can loan more than their actual reserves, especially if they have a lot of performing debt at criminally usurious rates, no? where's the national saving shortage from credit-backed consumption?]. Not surprisingly across countries personal savings rates are closely tied to the availability of generous consumer and mortgage credit where one pays after purchasing (the American system) to debit cards where one pays before purchasing (the Japanese system) makes a big difference in the savings rate. "From a savings perspective the tax laws permitting home equity loans will probably prove to be one of America's biggest economic mistakes. In the past, middle class individuals could count on enterirng their old age with substantial savings because they had been forced to make monthly house payments (a form of compulsory savings) and because the value of their homes had appreciated. With home equity loans individuals don't have to save to live in their house. They can just keep taking their net equity out. If homes appreciate, home equity laons can actually generate negative savings, since appreciating home home values look like, and are, financial resources for each individual family [the same effect would apply to stock gains, no?] but are not savings as far as society is concerned because the higher selling price one American receives is what another American has to pay... "if more savings are desired [and Jordan asks why], the right technique is not take breaks for income but tax penalties on consumption that rise as consumption rises. Yet serious legislation to shift from a system of taxes on income to a system of progressive consumption taxes [Thurow wants taxes on health care expenditure] is conspicuous by its absence." The Future of Capitalism, p. 301-2 best, rakesh