Wednesday, January 4, 2012
Are you in the mood for some Occupy-style outrage? Let's look at this household debt chart again, highlighting the Reagan and Bush II Presidencies, eras which featured tax policy aimed at disproportionately benefiting our wealthiest:
You'll note that both periods featured rapid escalations in the growth rate of debt relative to the ability to repay it, and it's no coincidence. It's a tragic case of keeping up with the Joneses: people see their wealthier neighbors spend more, so they have to spend more so as not to lose position in the pecking order. This explanation is reinforced by the fact that the mix of who held this debt changed during this period, as the top 10% income earners actually managed to reduce their share 8% between 1989 and 2007 (source: Federal Reserve 2007 Survey of Consumer Finances). In other words, trickle down debt.
What does this mean? A friend of mine characterized it as a matter of regressive government handouts, where the rich got the clean money provided by tax cuts and the regular people got the dirty money facilitated by interest rate cuts, as both the 1980s and 2000s saw some aggressive monetary policy. A conspiracy theorist may interpret this as an attempt to repress the lower classes by inducing them into indentured servitude. The less conspiratorially-minded would point out that those rate cuts were reasonable responses to events such as the end of early 80's inflation, the 1987 and 2000 market crashes and the post-9/11 recession.
Indeed, it misses the point to seek retribution. The takeaway is simply that we shouldn't allow the politicians who still support these policies - including every GOP Presidential contender and most of their colleagues on Capitol Hill - to come within 1,000 yards of the corridors of power. You don't need a grand conspiracy theory to be concerned about the oppressive nature of carrying a high personal debt burden, or to be outraged at this result of the now-obviously ridiculous notion that making the rich richer would benefit us all.