The mainstream media is reporting that low consumer credit scores are hurting the economic recovery.
Today I appeared on CNBC’s Street Signs to argue the opposite view: that lower credit scores, and thus less consumer debt, are a good thing and the only way to real long-term prosperity. Have the “experts” learned nothing from our recent experience?
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“Let the American people go into their debt-funding schemes and banking systems, and from that hour their boasted independence will be a mere phantom.” (William Pitt, Chancellar of the Exchequer, England, 1791. Quoted in T. Cushing Daniel, Real Money Verses False Money–Bank Credits, p. 32.)
Great job Jacob. I hope that you get more opportunities in the media to share your calm wisdom.
No.
They are too far engaged with Keynesianism and too arrogant to accept they were wrong all along. Truth hurts.
Oh, yes they have: they’ve learned that a far higher number of people than ever before expect the government to help them out (isn’t this the underlying assumption behind the CNBC person’s questions?), and that gives politicians yet more ammo to do something; anything.
I’m reminded of the politician’s syllogism, as invented by the writers of the British comedy “Yes, Minister!”: * We must do something
* This is something
* Therefore, we must do this.
Can’t wait for your book! It should be available next week. It will be the best overview of libertarianism to appear for the current generation. It is a smashing piece of work.
What book are you referring to?
This book.
Amazing how the other guy with the bad hair keeps equating “recovery” with increased consumer spending.
Just ordered a copy from Amazon.com. Doesn’t look like they have a Kindle version yet. Looking forward to a good read.
First of all, what’s true in theory is true in the “real world.” There is no disconnect between logic and the “real world.”
Agreed!
“The inability of consumers to renew their drinking binge is endangering the recovery!” … of liquor store owners and the criminals who specialize in rolling drunks. Also social workers, cops, prison guards, divorce lawyers, military recruiters and tatoo artists.
But, gee, it’s not the consumers’ fault. It doesn’t seem fair to shut them off just because they can’t see or walk straight. Besides, they’re not even driving, Uncle Sam has the keys, and he… oh, my!
Jacob, you should have thrown in there how the inflationary policies of the Fed will destroy savings.
given the limited time (abct can’t be condensed in a two-minute bite), and the fact that the anchorwoman seemed to be in thrall to textbook keynesianism, the point was well made by jacob, that is, what’s good for the individual is good for the economy at large.
jacob seems one of the better media performers amongst the libertarian camp. concise and understandable.
With respect to the debt levels, we have access, thanks to professors Reinhart and Rogoff, to hundreds of years of history related to sovereign defaults. If you calculate today government debt as a multiple of tax revenues for the G7 economies, it already approximates the 3.5x ratio that was the median indebtedness level of defaulting sovereigns of the past two centuries. If you bother to dig around the accounts and consider unfunded liabilities, the picture looks worse. Add in the very high levels of private sector indebtedness and it looks worse still. There is too much debt.
Country — Debt-to-Revenues Ratio
USA: 6.1
Japan: 6.3
Germany: 4.2
UK 3.5
France 3.4
Canada: 4.1
Italy: 4.8
I’d say, just do it !
But I live in germany. We have many cars and would be happy to sell some more. Also Frau Merkel put away the Special K for a while. Feels good to me, but I think a change one can believe in is a better slogan than austerity.
The warm but virtual feel good effect of socialism will shape the opinion of the uneducated.
Keep up the good work. I’ll have my bourbon for breakfast now. So long, and thaks for all the down to earth economics in the times of artificial highs.
“10% unemployment isn’t the consumer’s fault.”
Wow. Ya, I agree, it isn’t their fault in the end, but it IS their fault for loading up on debt when times were good. And, really, what is wrong with renting? We don’t need credit for anything beyond buying a home. Everything else can be purchased with cash. I just bought a $38,000 car in cash by SAVING for 5 years, putting away what I would otherwise have been paying on an auto loan into investments.
“…putting away what I would otherwise have been paying on an auto loan into investments.”
This is exactly what I tell people to do. They look at me like I’m crazy. Then, like a light being turned on, they realize the foolishness of going in debt for a vehicle. It’s really not surprising though. People are constantly bombarded with “zero percent financing!” or “no money down!” ads, and because of the “gotta have it NOW!” mentality, they rush out, go in debt, and drive away with a smile on their faces thinking they received a great deal. Suckers.
I need more debt like I need a hole in the head, so having a poor credit score is a good thing for me at the moment. Cash only.
I don’t think so!
Poor credit score makes life difficult.
It was a good post, economy may be recovered by increase in the consumer debt but the other view mentioned are also worth noting. Thanks for sharing it.
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