Steve Perry interviews me on the current mess:
.....
A good interview.
I especially appreciated the following, which blesses something I've been saying for awhile when what's grandly called 'personal finance' is discussed:
<snip>
Henwood: Well, in some sense, the debts and assets on balance sheets aren't really what makes an economy move. What makes an economy move is what's happening in the present. Goods and services that are made and made available and bought in the present, incomes earned in the present. The way unwinding bad debt has an effect on the economy is through what it does to present behavior.
We've seen for the last 30 years or so that debt was used by a lot of people to compensate for very weak income growth. The real value of the hourly wage in the US peaked in 1973, declined into the mid-90s, picked up a bit in the late '90s, and now has been flat to declining ever since. In the face of stagnant incomes, people worked harder. More people from families went to work. They worked longer hours. But they also borrowed very aggressively. So one reason we saw this tremendous growth in debt over the last couple of decades was to compensate for those deficiencies in the real economy--the weakness of real wages for most people.
What are we going to do about that? We can work off all the debt we want, and the banks can do all the write-offs they want, but if we still have very weak income growth--and, as we've seen through the 2001-2007 expansion, very weak employment growth (the weakest labor market income growth we've ever seen in a post-WWII expansion)--then you still have a fundamental problem. And I don't think going through this financial exercise of restructuring the banks is going to do anything to solve that underlying fundamental problem.
[...]
The standard rhetoric on household debt is this: if we only lived more frugally, there would be no crisis -- at least, not at the household level. Corporate debt is almost always spun as an investment but personal debt -- with the possible exception of houses and autos -- is described as the unhappy result of our inability to say no to shiny new things.
This moralist bedtime story is popular with bright eyed maniacs such as 'financial adviser' and American Public Broadcasting fund raising dancing bear Susie Orman and some of the best informed lefty analysts (there was a hint of it during Doug's recent interview with Nomi Prins and Max Fraad Wolff. Whenever Wolff talked about consumer debt, I detected a note of 'we are not amused' disapproval in his voice.)
Scarcely a day goes by without some media presented person proudly talking about how they avoided credit card and other types of debt by driving a stone age car or wearing the same dress their grandmother wore to the Zapruder film's first showing or growing hydroponic tomatoes or using flashlights for reading or heating their house with the shattered dreams of orphans or some other 'I'm more disciplined than thou' mong fodder.
All well and good. If you can't afford a new flat screen television, or whatever, it's probably best to avoid going into debt to get it. We all agree on that. But what to do if that ancient car needs a new transmission and you need the car to get to work? And how will you cover the expense of the new water heater you need? These two items alone might cost you nearly $3,000.00 dollars, or thereabouts. If you aren't liquid enough to write a check without breaking a sweat, what do you do?
...
Last week, a good friend lost her job. Fear, uncertainty and doubt -- never far off -- made their triumphal reappearance in her life.
She started to self flagellate over her debt load. 'What did you use credit for?' I asked. Turns out that with the exception of a few gifts for the kiddies and herself, the Raptor's share of the debt came from necessities her salary couldn't cover.
Her story is not unusual.
I've come to view tales of crazy spending Americans who order new kitchens, titanium plated cars, gold helmeted cats and other non essentials with Bacchanalian abandon to be the middle class equivalent of moral panic horror stories featuring Cadillac driving welfare cheats.
If you look hard enough, you'll find examples that reinforce your preconceptions. But the question remains: how do most people live?
.d.
-- "Smell the outrage, 140 characters at a time!
Owen Thomas .............................. http://monroelab.net/blog/