Author: David Brooks
Publication: The New York Times
Date: June 10, 2008
The people who created this country built
a moral structure around money. The Puritan legacy inhibited luxury and self-indulgence.
Benjamin Franklin spread a practical gospel that emphasized hard work, temperance
and frugality. Millions of parents, preachers, newspaper editors and teachers
expounded the message. The result was quite remarkable.
The United States has been an affluent nation
since its founding. But the country was, by and large, not corrupted by wealth.
For centuries, it remained industrious, ambitious and frugal.
Over the past 30 years, much of that has been
shredded. The social norms and institutions that encouraged frugality and
spending what you earn have been undermined. The institutions that encourage
debt and living for the moment have been strengthened. The country's moral
guardians are forever looking for decadence out of Hollywood and reality TV.
But the most rampant decadence today is financial decadence, the trampling
of decent norms about how to use and harness money.
Sixty-two scholars have signed on to a report
by the Institute for American Values and other think tanks called, "For
a New Thrift: Confronting the Debt Culture," examining the results of
all this. This may be damning with faint praise, but it's one of the most
important think-tank reports you'll read this year.
The deterioration of financial mores has meant
two things. First, it's meant an explosion of debt that inhibits social mobility
and ruins lives. Between 1989 and 2001, credit-card debt nearly tripled, soaring
from $238 billion to $692 billion. By last year, it was up to $937 billion,
the report said.
Second, the transformation has led to a stark
financial polarization. On the one hand, there is what the report calls the
investor class. It has tax-deferred savings plans, as well as an army of financial
advisers. On the other hand, there is the lottery class, people with little
access to 401(k)'s or financial planning but plenty of access to payday lenders,
credit cards and lottery agents.
The loosening of financial inhibition has
meant more options for the well-educated but more temptation and chaos for
the most vulnerable. Social norms, the invisible threads that guide behavior,
have deteriorated. Over the past years, Americans have been more socially
conscious about protecting the environment and inhaling tobacco. They have
become less socially conscious about money and debt.
The agents of destruction are many. State
governments have played a role. They aggressively hawk their lottery products,
which some people call a tax on stupidity. Twenty percent of Americans are
frequent players, spending about $60 billion a year. The spending is starkly
regressive. A household with income under $13,000 spends, on average, $645
a year on lottery tickets, about 9 percent of all income. Aside from the financial
toll, the moral toll is comprehensive. Here is the government, the guardian
of order, telling people that they don't have to work to build for the future.
They can strike it rich for nothing.
Payday lenders have also played a role. They
seductively offer fast cash - at absurd interest rates - to 15 million people
every month.
Credit card companies have played a role.
Instead of targeting the financially astute, who pay off their debts, they've
found that they can make money off the young and vulnerable. Fifty-six percent
of students in their final year of college carry four or more credit cards.
Congress and the White House have played a
role. The nation's leaders have always had an incentive to shove costs for
current promises onto the backs of future generations. It's only now become
respectable to do so.
Wall Street has played a role. Bill Gates
built a socially useful product to make his fortune. But what message do the
compensation packages that hedge fund managers get send across the country?
The list could go on. But the report, which
is nicely summarized by Barbara Dafoe Whitehead in The American Interest (available
free online), also has some recommendations. First, raise public consciousness
about debt the way the anti-smoking activists did with their campaign. Second,
create institutions that encourage thrift.
Foundations and churches could issue short-term
loans to cut into the payday lenders' business. Public and private programs
could give the poor and middle class access to financial planners. Usury laws
could be enforced and strengthened. Colleges could reduce credit card advertising
on campus. KidSave accounts would encourage savings from a young age. The
tax code should tax consumption, not income, and in the meantime, it should
do more to encourage savings up and down the income ladder.
There are dozens of things that could be done.
But the most important is to shift values. Franklin made it prestigious to
embrace certain bourgeois virtues. Now it's socially acceptable to undermine
those virtues. It's considered normal to play the debt game and imagine that
decisions made today will have no consequences for the future.