Robert D. Manning -- Credit card nation: The consequences of America's addiction to credit
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Credit cards, in particular, and debt in general are incredible
inventions.  They are huge turning points in the history of human
society.  They are fantastic enablers.

Manning gives a very good description of credit card debt in the
U.S. and what the consequences of it heavy use are.  Here are some
notes that should give you an idea of what you will learn from his
book.

However, in addition to enabling us to do many things that we want,
they also enable us to hide and to delay facing a variety of
problems, for example: (1) The reduced and lost income by the middle
and lower-middle classes and the resulting loss of status and
lifestyle that this income was needed to maintain. (2) The increased
cost of education and our unwillingness to fund it publicly; the
burden this places on college students and graduates (with student
debt); and what those denied opportunities will mean for our
society. (3) Our unwillingness to confront, deal with, and control
our impulsive frivolous, non-essential spending.  (4) The growing
inequality of wealth and incomes in the U.S. and how consumer
personal debt (credit cards, home refinancing, etc) are used to
shield the shield the middle and lower middle classes and to hide
this class disparity.  (5) The changing economic landscape and the
loss of the social contract between corporations and workers. (6)
The industrial restructuring, downsizing, off shoring, and the shift
from manufacturing jobs to (lower paying) service jobs.

Credit cards and other debt mechanisms enable us to budget based on
times of prosperity as though those are normal times and will not
end.  Consider, for example, the situation in Stockton, California,
U.S. and other cities in California which have had to face
bankruptcy.  History tells us, "there will be cycles", but we
continue to believe, because we want to believe, "these times will
last".  Our desire for more leads us to continue to ratchet up
spending, even after earnings and income become flat or start to
decline.

Debt and, for individuals especially, credit cards have become a way
to put off accepting the reality that society and economic system
does not enable us to afford all that we want.  They blunt the
effects of the growing inequality of wealth and income.  And the
result has been credit dependence -- a lifestyle that is possible
only through borrowing.

We have developed institutions in our society and economic system,
banks in particular, which require in order to be profitable, both
(1) low interest rates and (2) lots of consumer credit (home loans,
credit card debt, etc).  The first transfers money away from (small)
savers; the second transfers money away from those in debt.  Add to
that the widening wealth gap and what it means for borrowers, in
particular: (1) for convenience borrowers who can afford to payoff
their credit card debt on time or earlier get low cost credit, while
(2) revolving credit users pay high interest costs.

In part this is due to changes in culture and values, for example,
debt is no longer stigmatized as it once was.  It is also happening
because we have "democratized" debt, especially credit card debt,
offering it to an expanded segment of our society, in particular to
those households that have lower incomes and unreliable income
sources.  These are not convenience debt users who "borrow" because
using a credit card is more convenient that paying with cash.  These
are those who use debt because they cannot afford what they need or,
at least, feel that they need.  Credit card debt, in many cases,
helps these revolving credit users to prevent or delay the loss of
status and lifestyle that they fear.

Manning is especially good at describing how extensive the effort
was by credit card issuers to entice borrowers to use that credit,
to take on that debt.  And, then (around the year 2000) our
government, rather than protecting those who had become lured into
taking on this debt, protected the credit card issuers by making
personal bankruptcy (but not business bankruptcy) more difficult and
painful.  Inevitably, when you squeeze here, the balloon expands
over there: when credit card debt default became more painful,
Americans responded by taking on other kinds of debt: they
refinanced their homes.  They sold their houses to the bank or they
cashed in their retirement savings (remember how Americans were
supposedly saving by buying houses?), you can view that either way.

It is, I feel, productive to view and think about this book through
the following perspective: (1) the consequences of the increasing
economic inequality described by Joseph Stiglitz (see "The Price of
Inequality"), Paul Krugman, Robert Reich, and others in terms of the
damage that debt causes to low income households and the poor; (2)
the cost of that debt in terms of high interest rates for revolving
credit users; (3) the effect of that structural inequality in terms
of both (a) who profits from it, in particular the banks, and (b)
who enables it, especially the U.S. Congress, The Federal Reserve
Board, the U.S.  President and the regulatory agencies under him,
most of whom are rented by the finance industry.

In the 1980s and 1990s, we financed the excessive consumption needed
to keep U.S. capitalism (the retail industry, the banking and
finance industry, etc) going on credit card debt.  That stopped
working so well in the 2000s.  So, we switched to Re-Fi's, 2nd home
loans, etc.  Then we had the financial crisis of 2006 and after.
What can we possibly use to keep U.S. capitalism going now?

We, as a society, are consuming more while producing less.  And,
even in sectors where we have become more productive, we are
compensating workers less for their productivity.  We've attempted
to hide these changes through the use of debt, especially credit
card debt, but also home mortgages and refinancing our homes.  That
has about run its course and done as much as it can.  What ingenious
devices will we use to keep the game going now?

Two important links or connections have been broken: (1) Because of
the promotion of credit cards by banks, because of U.S. government
policies (especially those pushing easy credit for home loans),
because of a buy-now pay later culture and a culture that is less
ashamed and less afraid of debt, and because of the squeezed or
reduced earning power of many workers in the U.S., the connection
between earning and consumption has been broken.  We no longer feel
that we have to earn first before we can spend.  And, just as
importantly, (2) because of hiring policies, firing policies, and
other employee related policies by corporations, much of the social
contract between employers and employees has been shredded and
broken.  Both of these broken links, especially when combined, help
us to understand why so many households do not save, why they are in
debt, and why are only one or two missed paychecks away from
homelessness.

The analysis that Manning does pushed me to be engaged with and to
think about these issues and more.  So, I suspect you can understand
why I really appreciated this book.

08/06/2012

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