Thursday 19 Jul 2018 | 02:44 | SYDNEY
Thursday 19 Jul 2018 | 02:44 | SYDNEY

Does consumer debt matter?


Sam Roggeveen


24 October 2008 09:40

Andrew Bacevich, in The Limits of Power, certainly thinks so:

...American habits of conspicuous consumption, encouraged by Reagan, drew the United States ever more deeply into the vortex of the Islamic world, saddling an increasingly debt-ridden and energy-dependent nation with commitments that it could neither shed nor sustain.

I'm still not convinced Bacevich's book actually makes a very good case for a direct connection between American consumerism and its military adventurism. But on the more limited question of whether higher consumer debt has hurt the US economy, Bacevich seems to have found an ally in Barack Obama. This from an interview with Joe Klein:

"The engine of economic growth for the past 20 years is not going to be there for the next 20. That was consumer spending. Basically, we turbocharged this economy based on cheap credit." But the days of easy credit are over, Obama said, "because there is too much deleveraging taking place, too much debt.

And now the case for the defence, by the Atlantic Monthly's Virginia Postrel:

The expansion of consumer credit is one of the great economic achievements of the past century. One institutional and technological innovation after another has made borrowing easier and cheaper for rich and poor alike. With each development have come fears—sometimes fueled by the unforeseen problems that inevitably accompany new practices—that this is the change that surely will lead to disaster. Yet a half century after Black’s warnings, doomsday has not arrived, the “consumer-credit explosion” continues, and most consumers are much better off.

Finally, here's a reply to Postrel.