Over at Reason, Anthony Randazzo argues that private debt is actually one of the leading culprits in the nation’s continuing economic malaise. He raises a good argument:
America’s economic pundits are not very creative. For the past several years, their gripes about economic growth have fallen into several staid categories: Monetary policy (“the Fed should do less” vs. “the Fed should do more”); the struggling housing market (“let housing bottom out” vs. “we must save housing”); income inequality (“it doesn’t matter” vs. “it does matter”); and the federal deficit (“lower taxes, pretend to lower spending a lot” vs. “raise taxes, pretend to lower spending a little”).
While most of these are legitimate causes of economic stagnation, there is another category that is having an outsized negative impact on growth: privately held debt.
The housing bubble should have been the warning needed to correct American thinking on debt, but the media’s positive spin on reports that borrowing is “coming back” suggest the lessons have not been learned.
When considering the burden of school debts, mortgages, and car payments for American families, is it any wonder that there isn’t much spare cash for saving and investing? At BPF, we wonder if the problem developed culturally during the long period of prosperity the country experienced, but is now reinforced by government systems put in place to keep things going. Consider the number of public-private programs that entice individuals to treat debt as no big deal such as zero-down, below-market interest loans for first-time homebuyers or government-backed school loans. Here in Mississippi, our government even hands out zero-interest loans to certain risky startup companies. All of those programs distort the market, and crowd out institutions and individuals who approach debt responsibly.
No matter the cause of too much individual debt, the solution probably needs to start at the individual level. As Ben Franklin wrote in Advice to a Young Tradesman (1748),
“Beware of thinking all your own that you possess, and of living accordingly. ‘Tis a Mistake that many people who have Credit fall into. To prevent this, keep an exact Account for some Time of both your Expences and your Incomes. If you take the Pains at first to mention Particulars, it will have this good Effect; you will discover how wonderfully small trifling Expences mount up to large Sums, and will discern what might have been, and may for the future be saved, without occasioning any great Inconvenience.
In short, the Way to Wealth, if you desire it, is as plain as the Way to Market. It depends chiefly on two Words, INDUSTRY and FRUGALITY: i.e. Waste neither Time nor Money, but make the best Use of both. He that gets all he can honestly, and saves all he gets (necessary Expences excepted) will certainly become RICH: If that Being who governs the World, to whom all should look for a Blessing on their honest Endeavors, doth not in his wise Providence otherwise determine.”