To borrow or not to borrow?

Will Americans decide it’s time to borrow again? The Wall Street Journal thinks so. Its top story recently said U.S. families debt levels have fallen to below what they were in early 2005 (see Families slice debt to lowest in 6 years). The drop in debt, the paper told readers, means we consumers now are “in position to start spending more.”

I boggled at that statement, in part because it came in the same sentence that told us that families lowered their (our) debt “by defaulting on their loans and scrimping on expenses.” But mostly because the same story notes that debt levels still sit at 116 percent of disposable income. Just ten years ago it was below 100 percent of disposable income. There was little in the story that suggested that Americans were in much of a mood to spend. How do we derive this desperately hopeful first sentence from such an article?
Worse, on the jump page of this article (in the print edition), there is an article on China’s growth (see China Trade Rise Prompts Shifts Around the Globe). It features prominently a comment from Larry Summers, who predicts no one will remember the ‘Great Recession’ of 2008. We have pretty short memories, since we have short memories. Who remembers all the depressions and recession from before the Great one? For that matter, it’s almost certain that Summers will fade into obscurity. He was nowhere near as powerful as Andrew Mellon, and Mellon is largely forgotten today. But that same article featured this interesting comment from Robert Lawrence, a Harvard economist:

“The U.S. economy has become so specialized that less-skilled U.S. workers no longer compete head to head with emerging-economy workers.”

A lot of Americans probably feel like they’re not as skilled as they need to be. So why would they start borrowing now? This takes me back to the Journal’s top story, which seems to me to be muddle-headed, or at least based on wishful thinking.

Leave a Reply