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Tuesday, August 13, 2019

Discovering Debt

By many measures, the US media-- television, the Internet, radio, and the remaining newspapers and news magazines-- have done a remarkable job of keeping the US public alienated from its own interests.

Nothing demonstrates this credulity gap more dramatically than the contradiction between the continuing positive measures of consumer sentiment, like the Consumer Confidence Index, and the drastically deteriorating economic status of the majority of US consumers. Apparently, most of the economically distressed working class suffer silently, while believing the glowing media reports of steady economic growth and record-breaking market success. While bills accumulate, paychecks stagnate, debt climbs, and savings are stressed, mindless distractions and cheerful entertainments lull the masses into unwarranted optimism, accepting individually-felt economic distress as individual shortcomings. 

By now the shocking late-May Federal Reserve study revealing that nearly 40% of US citizens could not sustain an unexpected $400 hit without borrowing the money from someone, selling something, or ignoring the bill, has moved beyond media attention, not to be revisited by the media’s army of talking heads. But the media cannot continually disguise the brutal fact that roughly half of what arguably counts as the working class lives precariously.  Eventually, the pitchforks must come out.

If further motivation was needed, a recent article in The Wall Street Journal-- not the liberal darlings, The New York Times or the Bezos Washington Post, but the Murdoch Wall Street Journal-- should provide it. In a lengthy piece entitled Middle-Class Debt Swamps Families (8-01-09), authors Anna Maria Andriotis, Ken Brown, and Shane Shifflett document the enormous debt on the backs of the majority of US consumers, piling up in the face of stagnant income growth.

While the authors employ the slippery term “middle class,” their conclusions apply mainly to the bottom 90% of US citizens-- the working class and a section of the petty bourgeoisie. Where their numbers are aggregates or averages of aggregates, their conclusions understate the debt burden of the working class; the upper reaches of the US population are relatively debt-free, unlike the majority.

The housing bust of 2007-2008 radically and painfully reduced the growth of mortgage debt. Nonetheless, non-housing debt, especially student loan and automobile borrowing, has grown dramatically since the collapse. The cause of this rise is apparent: median household income today is only slightly higher than it was in 1999. Indeed, it has grown only marginally since the 1970s. It is not extravagance nor faulty planning that accounts for the dramatic rise in debt, but growing costs and greater financial demands on the family.

The average loan for a car is up 11% ($32,187) in a decade. The cost of housing has risen 290% over three decades, with lower priced home prices rising even faster, and college tuition has climbed 311% in the same period.

Average per capita health care expenditures have climbed 51% in the last 27 years. 

The average credit-card debt has reached $8,390 in 2019, up 9% since 2015. Consumers have met higher costs and stagnant incomes with heavy borrowing. The consequences of this debt frenzy would be even more dire if interest rates were not relatively low since the 2007-2008 downturn. However, the lower rates provide a false sense of safety, taking less interest from disposable income than previously.

The WSJ writers concede that debt crisis is exacerbated by obscene income and wealth inequality. They note that since 1989 a third of asset growth has gone to the top 1%, while the middle 20% of households have experienced only a 4% increase in assets in the same period.

The calculus is really quite simple: working people suffer income stagnation, sluggish asset growth, and escalating costs of living. Therefore, they must make up the difference by borrowing money; household debt must grow.

Home ownership is now beyond the reach of younger workers. 

A financial specialist for the Atlanta Federal Reserve office puts it bluntly: “What we may have to prepare for in the future is that buying a new home, and in some markets even buying an existing home, may become a luxury.”

The Wall Street Journal article does not signal a change of heart by the paper’s extremely conservative, pro-capitalist owners. Nor does it mark a rare moment of compassion for millions of US workers.

Instead, the authors are expressing a real fear that the ballooning debt will explode and threaten the capitalist system. The hardships imposed by the stagnant income/bloated-debt regimen threatens to provoke a challenge to the entire system, a movement that can’t be dampened by the two-party polka. They understand that younger households are reaching well beyond their budgets to buy new homes and accepting lengthier terms on car purchases (nearly a third of car buyers roll their debt over into another purchase). And, most importantly, they understand that finance capital will eventually call this enormous debt in with possibly catastrophic results. The capitalist moloch cannot feed on hypothetical profits. So what is to happen when struggling debtors cannot pay?

No celebration of job creation or GDP growth masks the dire fragility of working class living standards. The consumption growth that sustains the US economy rests on the rotting piers of consumer debt. 

It is hard to find answers in the Democratic Party beauty contests that are posing as debates. Most candidates are profoundly committed to the corporate-friendly “a rising tide lifts all boats” philosophy. They rail against the Trump tax cuts for the rich and, perhaps, support a higher minimum wage, but put their faith in market solutions. The few with modest “New Deal” social democratic programs, fail to recognize that should they squeeze finance capital, they threaten to throw the system that they defend into a tailspin. It’s what Marxists call a contradiction.

Capitalism produces contradictions. That’s why we need socialism.

Greg Godels

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