The Indebted Way We Live Now
When I was in school, I remember having an argument with a friend whose family lived pretty close to the edge, financially. The argument occurred during a particularly rough patch when my friend explained to me that she was hungry because didn’t always have enough money for proper meals.
Now, another person would have been sympathetic, maybe even bought her a danish or something. But no! I was going to teach a man (well, girl) to fish, so she would not only eat today, but never hunger more. So I asked her: what about rice? Rice is really cheap. Anybody can afford rice. Figure out what the most expensive food is that she bought last month, and next month buy rice instead. Presto! Problem of hunger solved.
I came by this attitude fairly honestly, my family – my mother’s side, anyway – having gone through the privations of the war. And while I like to think I’ve gotten more compassionate with time, I know that, deep down, I haven’t really. I still basically think that most people could perfectly well live within their means if only they exercised some simple discipline. (I do hope – and believe – that I behave more compassionately now than I did then, precisely because I am aware that this ingrained attitude of mine is sub-rational.)
All of this comes to mind apropos of Rod Dreher’s post linking to this article about the democratization of financial insecurity. The author, Neal Gabler, laments the precariousness of his finances, notwithstanding the fact that he’s a successful writer earning a decent middle-class income. The author is aware of the various questionable choices he’s made that put him in this precarious position, but says this:
[W]ithout getting too metaphysical about it, these are the choices that define who we are. We don’t make them with our financial well-being in mind, though maybe we should. We make them with our lives in mind. The alternative is to be another person.
That’s very true – but it’s worth recognizing that it’s nothing new. Read Trollope, or Balzac, or, Tolstoy, or, well, any novelist of the 19th century, and you’ll find the books peopled with members of the gentry struggling with debt problems. Sometimes they go into debt because of bad habits – gambling, frequently – but plenty of times it’s about keeping up position. You only have so much income from your lands, but you need to keep up a place in society so that your children will marry well, and, well, soon the cost of keeping up that position has bankrupted you.
This position has indeed been democratized, thanks to credit cards, and it’s possible that Gabler and people like him just don’t recognize that they are the functional equivalent of impoverished gentry in the 19th century. But credit cards themselves are merely the latest manifestation of a long history of financial innovation to extend credit – innovation that tends to get more innovative in response to opportunity. Because those with credit to extend will always find ways to extend it as far as is profitable – and then use force, if necessary, to make sure they are repaid. Read Livy. His description of the Roman republic is an instructively repetitive tale of plebeians going deeper and deeper into debt, rioting against their patrician creditors, getting some relief, and then starting the cycle over again – a cycle that only “ended” by turning to plunder and conquest, first of Italy, then of the rest of the Mediterranean world.
On an individual level, the thing to remember is, indeed, not to let yourself get into extremity. For anybody in the middle class, this doesn’t require financial genius – just some serious discipline. Either make a budget, and live by it, or, if that feels like too much work, sock money away up front and wing it to live on what’s left while scrupulously avoiding touching that savings. And – this is the hardest part – take perverse pride in living more poorly than your neighbors with similar incomes. It’s not rocket science. The truly poor are another story, but for anyone with a solid middle-class income, these are real choices you can make.
But on a societal level, this is pretty much meaningless advice, because, in aggregate, financial resources cannot be saved for a rainy day – only real resources can. You can burn all your firewood now, or you can save some to make sure you don’t run out before the end of winter. But every single dollar that somebody saves has to be borrowed by somebody else – it’s a basic accounting identity. If you put that dollar in a box, you’re just taking it out of circulation – doing your small part to contribute to deflation. And so, in a very real sense, if everybody behaved like I was raised, and ate rice while stuffing currency in a box for later, we’d all be much poorer, and not a bit more financially secure.
Which is why, on a social level, questions of distribution can’t be reduced to questions of giving people what they deserve. There will always be some people who spend more than they earn, and some who earn more than they spend – that’s just human variation. Some of the people who spent more will turn out to have spent it wisely – the kid who goes to the expensive school winds up rooming with the founder of Facebook, and poof: you’re set. Most won’t. And those with a financial and information advantage will always find ways to press that advantage to the detriment of those with less money and poorer information. If you simply let that process ride, without regard to the consequences, you’ll learn pretty soon what the consequences are – and they are, on a societal level, pretty horrible.
Rising levels of indebtedness across the population aren’t a sign of moral decay; they are exactly what you’d expect in a society that has democratized affluence (so that virtually the whole population is living well above subsistence levels, and expects to do so) but has a low rate of productivity growth (so that expectations of future prosperity for most people run ahead of reality). That leads to a politics of scarcity – the kind of politics Livy and Balzac understood just fine. But the good news is that we actually do have tools for tackling those problems – not in a permanent way (these kinds of problems never get solved permanently), but well enough to kick the can of social unrest well down the road, and to make sure that in aggregate we’re not driving the middle class into poverty and saying “well, they lived beyond their means; they must deserve it.”
You want to get worried? Don’t focus on how quickly we are burning through our financial savings. Focus on how quickly we’re burning through the earth’s real resources.