Our Disastrous Debt Economy

I’m pretty old-fashioned economically, really. I put a relatively new name on my economic opinions (I call them “distributism,” a term derived from “distributive justice” and only in existence for less than a hundred years), but it’s really a set of pretty conservative principles, some of which even Republicans and libertarians will agree with. A few of my fundamental principles:

• An economy, like all parts of society, exists to help its members proceed away from vice and toward virtue. The provision of sufficient quantities of material goods, however it may be done, is a necessary part of this.
• Because economics deals with the distribution of material goods in a society, distributive justice is its fundamental principle. This distinguishes it from, say, criminal law, in which retributive justice is the fundamental principle.
• The bedrock of any economy is production of useful goods for human consumption. We cannot consume what has not first been made. Putting consumption before production is putting the cart before the horse.
• At least considered in the abstract, local is better than remote. The perfection of a society comes in part from possessing the greatest possible degree of self-sufficiency. Thus, encouraging reliance on remote, or even foreign, sources of goods when such goods can be produced locally is a Bad Idea.
• Debt is a burden on an economy; too much debt will cripple or kill it. My grandmother once told me, “If you can’t afford it until tomorrow, wait until tomorrow to buy it.” But she is a child of a different age, with saner principles in her mind.

That last is my topic today. We’re awash in debt. The primary issue most businesses have had during our current “economic crisis” is the inability to acquire more debt quickly enough. Our federal government, even, is in the hole nearly twelve trillion dollars, and that crushing debt is increasing at a record pace while our government lives out to its fullest Dick Cheney’s idiotic principle that “deficits don’t matter“.

The average American’s credit card debt is $8,329. That’s just credit card debt alone; that doesn’t include pesky little things like mortgages, car payments, student loans, hospital bills, and the million other things that people need to take out credit for. Indeed, in 2007 14.7 percent of U.S. families had debt exceeding 40 percent of their income. And then they still had to pay their mortgages, pediatricians, and so on.

Can anyone seriously look at this situation and claim it represents a healthy government and a healthy economy? At first, of course, it seems great; that’s why the Fed “stimulates” the economy by lowering interest rates to encourage people to borrow more. People are flush with cash with which they buy lots of stuff that they otherwise couldn’t afford; this makes car dealers and television salesmen very, very happy, which makes stocks go up, which means people borrow even more because they feel that things are only getting better, and so on. But this is a very limited boost to the economy.

Because, of course, it can only last so long. Eventually, the people lending this money out do actually want it back. With interest. And people begin struggling to make their payments. Many of them default; many of those who do not are forced to forego many purchases which they would otherwise make in order to pay off those bills. Businesses which might have hired one more person with real money, rather than three with debt, have to fire their three debt employees and hire nobody instead while they pay it back. It’s clearly a loss from the individual perspective; but for a while, the economy manages to cancel out those negatives and continue apace, building itself on ever-increasing piles of debt.

Too bad it’s bad debt. Eventually, those individual financial disasters begin to accumulate. They start as a trickle, increase into a flow, and finally crest as a tidal wave. And here we are, at the beginning of the tidal wave, right now, while our years and years of living beyond our means by borrowing for things that we couldn’t afford finally, at long last, catch up to us.

Who’s responsible for this situation? Facially, of course, it’s citizens and businesses who engaged in very risky credit behavior. Namely, it’s almost everybody in the country. But most of these people were relying on advice and on policies from higher up, coming from everywhere from the banks to the Fed itself. I myself, when buying my house, had to deal with constant encouragement from mortgage lenders to spend more than I had, despite my repeated insistence, and provision of a specific maximum figure, that I would spend only this much and no more. Those with less control or knowledge over their financial situation are surely much more likely to succumb.

The banks are really responsible, taking their cue from the Federal Reserve, who encouraged their reckless lending behavior with obscenely low interest rates. (Rates which remain obscenely low even as we speak.) And so, naturally, the banks ended up holding the biggest and heaviest bag when the debt hit the fan. But the banks also had the most money, even if it was funny money. They asked their friends at the Fed and the Treasury to help. And those friends moved heaven and earth to ensure that these banks would never, under any circumstances, face the consequences of their own actions, even as the poor in this great country literally lose house and home for following the advice that the Fed and these banks gave them.

So the banks are the truest of capitalists. Profit is privatized, as they made billions of dollars thanks to the government’s easy-lending policies. But costs are publicized, as the taxpayers of this generation and of countless generations to come pay the price when those policies finally run up against the inevitable wall. This is wrongdoing in the extreme. We have become a country run not by the people, nor even by a despot. We are an oligarchy, in which our very richest get whatever they want, taking the profits of the public largesse while forcing the hoi polloi to stomach the losses.

MSNBC, of all places, put up an interesting monologue which prompted me to return to this topic:

What is said in this video is true. The “Troubled Asset Relief Program,” which sprayed seven hundred billion dollars in free money all over the big banks like a fire hose, is just a drop in the bucket. TARP, combined with other federal programs bailing out the already rich and powerful, comes to 23.7 trillion dollars. This figure comes from our government itself, surely not given to inflating its estimates of its own reckless expenditures.[1] For comparison, the combined GDP of the entire world is only about sixty trillion dollars.

I mentioned earlier my grandmother’s statement, which I’ll go ahead and call Nana’s Principle: if you can’t afford it until tomorrow, don’t buy it until tomorrow. Reactionary advice, indeed. This seemed perfectly natural common sense to her generation; bred in the roaring twenties, matured in the Depression, steeled in the furnace of the Second World War. She and my grandfather, a combat veteran of that war and a sometime coal-miner, were much alike in that way; they grew up growing their own potatoes and shooting a lot of their own meat, and even in their adulthoods didn’t buy what they couldn’t afford. My own mother spent her infancy sleeping in an opened dresser drawer because they couldn’t afford a cradle.

It appears, though, that the apparatus of our government, much of which is only a decade or so younger than that heroic woman from whom I’m honored to be descended, appears incapable of digesting even in its maturity the lessons that she understood by the time she was ten years old. Nana’s Principle, so simple as to seem obvious, is completely beyond it. Its dependency on rich and powerful interests is so pervasive and so complete that it simply cannot contemplate not giving those interests everything they desire, up to and including indebting their country in the amount of over a third of the global gross domestic product to make sure that those interests remain ever rich and ever powerful, and leaving the poor, the workers, and the middle class to foot the enormous bill, in this generation and in the generations hereafter.

As I mentioned earlier, my economic opinions are pretty old-fashioned, though they go by a fancy name. That name is derived from an ancient concept, one hallowed in the annals of philosophy and politics for thousands of years: distributive justice, the giving to each what is his due. That is what distributism is, at its core: the implementation of distributive justice within an economic system. But this bailout system is the exact opposite of distributive justice. It gives profit to recklessness and costs to frugality; it gives benefit to fiscal incompetence, and even to fiscal malice, while thrusting its costs onto the complicit but largely innocent, and certainly less responsible, public. It’s an injustice, pure and simple, a violation of the principles which should guide all economic activity.

We must all pray that our nation recovers from and remedies this idiocy soon.

Praise be to Christ the King!

1. July 2009 Quarterly Report to Congress 137-38 appears to be its first acknowledgment in governmental literature. It appeared in some subsequent quarterly reports, as well; in the January 2010 report, however, it and the entire section it represented appears to be completely missing, without any explanation for the omission that I have uncovered.