Tuesday, September 20, 2011
Another Day Older . . .
In comments, Art protests about me making Reagan and Bush II the object of scorn over the issue of household debt. He suggests yet another FRED graph, which goes back a little further, and shows more debt burden rise in the 50's. This is Household Credit Market Debt Outstanding divided by Seasonally adjusted Salary Accruals.
I think Art wants to tell a story where debt growth has been on a continuously increasing trajectory through the entire post WW II period. Clearly, this is not the case. The graph above shows there was an actual decrease in debt burden in the 60's, then only a slight increase during stagflation and the moribund Carter administration. Given the context of the previous decade and a half, the Reagan/Bush I regime pretty badly screwed workers. Clinton did not reverse the tide, but - for a while, at least - was able to stop the bleeding. Then Shrub started adding coffin nails by the hundred weight.
Back in the early part of the graph, things don't look so good, either. So we can detect a pattern of Household Debt/Salary Accruals increasing across decades - but ONLY when there is a Rethug in the White House.
Somehow, though, this strikes me as not really being fair to Ike. The increase during his administration is roughly from .5 to .9. This is close to doubling, but the initial value is pretty low. Coming out of WW II household debt was quite low, for a variety of reasons, including war-time rationing and supply constraints. There was probably an excess of savings. There could well have been a pent up demand for credit that expressed itself as a housing boom, to provide necessary shelter and accommodations for the baby boom (frex, me.)
Debt is a problem if it can't be serviced, or if servicing it causes a distortion in standard of living, or spending and saving patterns. I think it's hard to make a case for those things at debt/salary < 1. I'm not prepared to set the break point, but it looks like it could very well be between 1.4 and 2.0 - the Shrub legacy.
We should also remember that there are a numerator and a denominator. Here are the graphs of year over year increase in household debt and salary accruals. Note the declining trend channel for salaries since the late 70's peak - and the counter-trend move in the 90's. Other than that, I will leave pondering the dynamics of these changes as an exercise for the interested reader. And if you've come this far, you might as well give it some serious thought.
So, to answer this question: "The number was increasing rapidly even in the 1950s. Was that Reagan's fault, too?" I say, no. In those days, Reagan was only responsible for some really bad movies. But I'll add that the question is irrelevant to my assessment of Reagan and Shrub. They destroyed the American Middle Class, and along with it the American Dream. This was no accident, and there's a lot more to the story than just debt. Supply side economics is and always was a sham, designed to enrich the already wealthy at the expense of all the rest of society. Look where we are now. It worked.