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Source link: http://archive.mises.org/13242/is-more-consumer-debt-the-key-to-economic-recovery/

Is More Consumer Debt the Key to Economic Recovery?

July 12, 2010 by

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?


ehmoran July 12, 2010 at 2:57 pm

“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.)

Bruce Koerber July 12, 2010 at 4:01 pm

Great job Jacob. I hope that you get more opportunities in the media to share your calm wisdom.

Old Mexican July 12, 2010 at 4:02 pm

Have the “experts” learned nothing from our recent experience?


They are too far engaged with Keynesianism and too arrogant to accept they were wrong all along. Truth hurts.

Marc Sheffner July 12, 2010 at 9:07 pm

“Have the experts learned nothing form our recent experience?”

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.

Jeffrey Tucker July 12, 2010 at 4:53 pm

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.

Bruce Koerber July 12, 2010 at 9:16 pm

What book are you referring to?

HL July 13, 2010 at 5:04 pm

This book.

Amazing how the other guy with the bad hair keeps equating “recovery” with increased consumer spending.

Dan W. August 2, 2010 at 8:17 am

Just ordered a copy from Amazon.com. Doesn’t look like they have a Kindle version yet. Looking forward to a good read.

Ivan July 12, 2010 at 5:14 pm

First of all, what’s true in theory is true in the “real world.” There is no disconnect between logic and the “real world.”

Bruce Koerber July 12, 2010 at 9:17 pm


Ohhh Henry July 12, 2010 at 9:34 pm

“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.

noah July 13, 2010 at 3:52 pm

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!

Phoenix July 12, 2010 at 9:36 pm

Jacob, you should have thrown in there how the inflationary policies of the Fed will destroy savings.

newson July 12, 2010 at 10:12 pm

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.

Geoff July 13, 2010 at 1:17 am

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

illness July 13, 2010 at 3:19 am

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.

J. Murray July 13, 2010 at 5:00 pm

“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.

Richie July 13, 2010 at 7:17 pm

“…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.

Mark F. July 13, 2010 at 7:45 pm

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.

Check Credit Score Observer September 7, 2010 at 5:17 am

I don’t think so!

Poor Credit Credit Card September 24, 2010 at 11:56 am

Poor credit score makes life difficult.

Consumer Debt Settlement November 13, 2010 at 1:32 am

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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