Saturday, October 8, 2011

Debt, and Occupy Wall Street

I've not yet been down to see the Occupy Philadelphia protest, though I hope to do so before the weekend is out. But reporter Kia Gregory has been down there this morning, Tweeting her observations. This one particularly struck me:

The Tea Party movement, you'll recall, began with Rick Santelli's famous rant against "losers" who'd fallen behind in their mortgage payments, defying the Obama-led government to do anything that might lessen the burden of those mortgages—because, after all, taxpayers shouldn't be on the hook for the unwise choices made by millions of individuals.

Admittedly, I think one of the wisest choices I made during the middle of the last decade was to not buy a house—despite a fair amount of peer pressure to do so. On the surface, there was plenty of reason to do so: I (at the time) had a solid career, loved the community was in, and expected to stay there a long time. Still: Buying a house looked likely to put me $150,000 or more in debt. An older colleague mocked me for my fear of such a substantial debt, suggesting I was avoiding the rites and even responsibilities of adulthood. But when circumstances changed—and then became more challenging—the lack of that $150,000 albatross around my neck gave me and my family a lot more freedom to make choices. The Philadelphia cardboard sign makes a really good point, it turns out.

But it's not been so long since we, as a society, had a very different attitude. Granted, it's an attitude my generation's grandparents—Depression-raised as they were—didn't seem to share. Debt wasn't a burden—it was "leverage," a way to get ahead, to "invest" in education or housing or (less crucially) a better SUV. If you could pay for those things with your own resources, super, but as my older colleague seemed to suggest, you were behaving counterproductively if you didn't take on the debt to get ahead.

Now, in a time of depressed housing prices and a high unemployment rate, that debt seems less like leverage and more like an anchor. I'm not sure what responsibility society—and taxpayers—have to the people who are now crushed by that burden. But society is not blameless in creating the problem in the first place. And I do suspect that the economy as a whole won't start to really move forward again until people feel like they can afford to buy stuff again (stimulating demand) instead of paying off their credit cards. There are probably two ways of doing that: Helping out the "losers" now, or settling in for a lost decade or more.

There is no freedom in debt. So what should we do about it?


Notorious Ph.D. said...

I've got no answers to your question, but I do wonder if I could get you to weigh in on a related issue:

About a week ago, I was watching a photo slide show of self-identified "99-percenters" holding up signs proclaiming their circumstances. Many of the debt burdens included five-figure student loan debts that they were unable to pay, having graduated into a no-jobs economy.

Then I made the mistake of reading the comments board, which I something I know I should never do. But I was surprised that the greatest bulk of vitriol was directed at the student loan people. The general gist was: I don't feel sorry for these people; they made the choice to get into student loan debt.

So: like a house, student loan debt is an investment in the future. Like a house, an education that one can't precisely afford is something that we've all been told is a good thing. My own reaction to these comments was to think of what our country would be like if higher education was limited only to those who could afford to write a check for it every semester. But apparently there are many out there who feel very differently about it.

What's your take on this aspect of the personal debt problem?

Lou Covey said...

I think an education system that requires you to go $40,000 in debt before you have a chance at a $30k py job is sinful, especially when the infrastructure exists to do the same education at a third the price exists. Apparently it's not just wall street that's greedy.

Notorious Ph.D. said...

Lou: Can you clarify "when the infrastructure exists to provide..." etc.?

I'm assuming that you're talking about the fact that the price tag on an undergraduate degree varies significantly depending on which college or university a student attends. Part of this cost differential is due to name-brand schools being able to charge more based on reputation alone: Harvard University or Kenyon College cost more because their names have a certain cachet. Whether that cachet translates into greater employability is a matter for debate.

On the other hand, part of the differential is a result of greater operating costs. An elite liberal-arts college arguably provides students with a better education because they have fewer student per professor, and professors teach fewer courses than they would at a less expensive regional state university. Each student gets greater attention, but this requires employing more faculty.

I agree that, in country that puts a premium on having an educated populace, we should make it financially possible for every qualified student to get a high-quality education without going into debt to do it. The system we have now for higher education is two-tiered: the wealthy can afford the Harvards and Kenyons; the poor and middle class are relegated to the less expensive model where resources are too thin to provide the same quality. Those talented students who want better, but can't afford it, are left with debt.

So: crushing debt or second-class education? It's a poor choice to be faced with.

J. Otto Pohl said...

Well it may be radical, but I think Jesus had the right idea abour usury and throwing the money changers out of the temple. Ending legalized loan sharking would be a good first step in reducing personal debt burdens.

The other thing is that social infrastructure that should be publically financed by taxes in an advanced society like medical care and higher education are extremely expensive to individual users in the US. In large part because money that should be used for such projects is wasted on corporate welfare, fighting in Afghanistan, foreign aid to Israel and other non-productive uses.