Mad About Debt

Exit polls tell us that the economy was forefront in the minds of yesterday's voters, but also that the national debt was high on the list of concerns.  The deep personal anxiety about the national debt surely is not just civic worry about Uncle Sam's credit rating.  Americans are in some measure projecting their own debt anxieties onto the government.  While one in three voter's family has experienced a job loss, household debt is affecting nearly everyone.

Nearly four years into the crisis (formerly called the subprime mortgage crisis) we are still suffering a massive hangover from the debt binge of the last decade.  In ten years household debt exploded from five and a half trillion to nearly fourteen trillion dollars.  From the onset of the crisis in 2007 through June 2010 mortgage debt and all the rest (credit cards, student loans) has inched down painfully slowly.  It would take thirty years at the present rate to bring household debt back to something like its 2000 levels.  Folks seeking mortgage workouts, over a million of them, are paying an average of 80% of gross income for debt service.  Students are graduating college with six-figure debt.

If debt worries were really just about government borrowing, the voters' simultaneous obsession with tax reduction could seem deliberately obtuse.  Candidates of all parties clamored to outdo each other's promises of tax reduction.  My own state of Indiana passed a constitutional amendment capping property taxes, heedless of the California experience with Proposition 13.  Tax reduction is not particularly helpful in reducing government debt, but taxes do represent spending for debt-burdened households. 

Any politician hoping to avoid the ballot box punishment just inflicted on Democrats would do well to consider not only how to address the government deficit, but also how to relieve Americans of their debt overhang.

Comments

[Jim Fickett]

It is an interesting point, and I'm sure in many cases you are right. But I'll offer a different point of view.

Despite California's formidable deficit troubles, I would vote against any isolated rise in taxes. Why? Because the states' real budget problem is excessive retirement promises, and so far they are doing relatively little about it. Jerry Brown, who is the primary person responsible for the unrealistic promises now in place in California, was just elected governor. So, why should I be willing to pay more taxes when they are just going to be used to delay facing up to the real problem?

Similarly at the national level. The health reform bill was a huge disappointment, in that it did almost nothing to contain costs. As long as medicare looks like it is going to sink the budget, and nothing is being done about health costs, higher taxes look to me like a way to throw away money without solving the underlying problems.

OK, I admit that is all somewhat one-sided and, in reality, I would accept higher taxes as part of a realistic balanced budget proposal, at both the state and national levels. Still, I would imagine that, for many people, the feeling that their money is just being wasted makes them less than enthusiastic about taxes.

[mt]

Re the post, I suspect the "solution" to your quite clearly identified problem is printing money.

Re the first comment by Mr. Pickett, I agree. Although I pay nearly half my income in taxes and government charges and compliance costs, I am willing, like him, to pay some more to reduce the debt that government has built up, but not for redistribution, not to fund more spending, not if government is allowed to wallow in its currently wasteful state, not if the tax laws continue to be riddled with loopholes and subsidies, and not if the benefits that have caused much of the debt buildup are treated as sacred cows. If those conditions persist, raising taxes is just refilling the water pitchers on the Titanic.

[carol]

Just a nit: Has it really been four years? I place the real start of this debacle at the worldwide credit meltdown of Aug 2007, though housing prices did seem to start dropping in 2006.

[Alessandro Machi]

The answer to Alan White's question is, we need a better distribution of PROSPERITY.

I wrote a four point economic plan on Nov. 3, 2010, http://wallstreetchange.blogspot.com/2010/11/2010-after-election-4-point-economic.html

16 days later, Congress person Bernie Sanders of Vermont basically says the same thing, however Sanders wants to tax billionaires more http://www.huffingtonpost.com/rep-bernie-sanders/the-billionaires-want-mor_b_786192.html whereas I think main street can pull themselves out if just given a fair chance, and with no bail out money.