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It's easy to blame debt on the debtors -- but that's missing the real story

COMMENTARY | November 21, 2011

American working families borrowed money not simply to buy luxuries, but because their wages were flat and going into debt was the only way they could afford basic public goods like first homes, education, and health care. So whose fault is that?

By Alexander Gourevitch

Journalists have a chance to change the story about debt and responsibility.

Right now, private and public indebtedness is widely perceived as a product of irresponsible profligacy. But American citizens did not suddenly become, en masse, less virtuous. Rather, indebtedness was in large part a product of stagnating wages, declining benefits, weakening bargaining power, and rising costs.

And Americans didn't borrow money simply because they were bingeing on luxuries like flat screens, Hummers, and second homes. They also had to go into debt to afford basic public goods like first homes, education, and health care.

Indeed, this was all the predictable result of an implicit, failed social model, whereby legal changes would open up credit markets and encourage lending -- rather than make public goods and basic necessities available as a matter of right. What was irresponsible was not the private response of individuals -- but the public response to the ever worsening economic footing of American working families.

Debt should not be considered inherently evil, nor should consumerist citizens be considered the root of immorality. Rather, we should pay attention to the particular way in which debt became part of the social contract.

How can journalists report this story? One way is simply by finding and presenting good data on wage stagnation and rising household debt, and then breaking this debt down by what it is spent on.

This graph, from State of Working America, illustrates the stagnation of wages:

This graph, from the San Francisco Fed, shows the rise of debt relative to disposable income:

And this graph, from Rortybomb, shows that student loans are now nearly as numerous as car loans or mortgages:


Another way to report the story would be to go "good by good." Pick a key good, like education. Then discuss the rising cost of higher education, the dramatic rise of student debt, the important legal changes around who can issue student debt and on what terms -- and compare all that with a few basic, familiar facts about the stagnation of median household incomes. Finish, perhaps, with studies that show the way unequal earning potential is linked to educational attainment.

A similar set of articles could look at rising housing costs, increased housing debt, changes in law regarding mortgages and mortgage securitization, and compare again with declining incomes. Once again, we would see how the acquisition of household debt, in the absence of sustained earning power, became the only way to gain access to necessary goods.

And if the general trends are real, they will show up in particular cases, by interviewing actual homeowners and renters, loan officers and debt servicers, students and workers, and telling their stories.

Knowing the general trends should help inform the questions reporters ask and guide them to information they might not otherwise recognize as important. The goal should be shedding light on the structural trends and broad social changes that we sometimes lose sight of in the midst of simple-minded, easy-to-grasp parables about foolish consumers and their unrealistic demands.




Posted by Mike H
11/21/2011, 02:05 PM

Slow down there sparky ... a first home is nor reclassified as a "basic public good"? Tells me what I need to know about the POV of this article.

Posted by taikan
11/21/2011, 03:03 PM

The author does have a point, but has not yet provided the data to support that point. Yes, wages have been stagnant. And yes, the cost of purchasing a house and the cost of a college education rose dramatically over the past 30 years. However, as much as I would like to agree with the author's premise, he hasn't provided statistics that support the contention that much of the debt accumulated by consumers in the past 20-30 years was for basic necessities rather than for discretionary purchases.

For example, the author states that Americans weren't borrowing "simply because they were bingeing on luxuries like flat screens, Hummers, and second homes." However, as statistics compiled by Nielsen show, the purchase of items like flat screen TVs and related services (cable, satellite TV, etc.) increased significantly during the 1990s and 2000s, as did the number of TVs per household. (http://blog.nielsen.com/nielsenwire/media_entertainment/more-than-half-the-homes-in-us-have-three-or-more-tvs/)

In addition, while the purchase of a home is part of the "American Dream," as a renter I can attest that it is not a necessity so long as there is affordable housing available for rent. Indeed, in some areas where the cost of purchasing a home rose dramatically, such as Silicon Valley, while the cost of renting did increase somewhat, it did not increase in proportion to the increase in the cost of purchasing a home.

Try again
Posted by Don Greenwood
11/28/2011, 06:44 PM

I agree with the posters that Mr. Gourevitch has presented a poor defense of his point. This is one of the weakest articles I have read on Nieman Watchdog.

A comparison to the upper crust increase in wealth would have helped his assertion regarding the beleaguered state of the middle/working class, but he does not elaborate on the type of goods and services working families spent their disposable and borrowed money (as an example, think of equity loans on primary residences used to finance questionable purchases).

As for the first graph, what does the comparison of hourly compensation versus hourly wages mean? Mr. Gourevitch does not bother to elaborate.

Principally I am in agreement with Mr. Gourevitch's premise, but his presentation is unconvincing - a truly sloppy effort.

another question
Posted by ACitizen
12/02/2011, 11:03 AM

Here is a question I ask all the time and it is telling the lack of any answer or sometimes any acknowledgment of my question I always receive.

In case you haven't noticed, every time someone says the economy is getting better and sometimes on the hope it is getting better oil prices rise.
Gas prices was the last straw that broke the economies back in 2008 and continue to this day.
With Americans being forced to take even less pay for a days work so that companies can compete in the global market how will Americas economy ever recover as basic necessities continue to rise and income goes down.

There is plenty of oil on this planet so demand is not an excuse for high prices. The problem financially is speculators bidding on oil they can not take possession of and are only in it for the money. Not a good thing when food and anything made from oil are affected and charged for accordingly. In the case of food the price goes up when energy is high and does not come down as oil fluctuates downward for short periods.

I am not interested in "other factors", I just want to know where the demand is going to come from that will cause the "job creators" to hire when Americans are trapped by high prices and low wages.

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