The Banality of Debt

A blog about business and economics.
June 5 2012 12:49 PM

The Banality of Debt

DES PLAINES, IL - NOVEMBER 11: A sign showing the American Express logo is seen outside of a bank November 11, 2008 in Des Plaines, Illinois.

Photo by Justin Sullivan/Getty Images

David Brooks wrote a column today about the Wisconsin recall election, but to avoid being totally boring he mixes it in with an extended discourse on debt:

Today we are living in an era of indebtedness. Over the past several years, society has oscillated ever more wildly though three debt-fueled bubbles. First, there was the dot-com bubble. Then, in 2008, the mortgage-finance bubble. Now, we are living in the fiscal bubble.

He has some intriguing theories about the psychological underpinnings of this shift. But did the shift even happen? Here's a chart about the alarming acceleration in American household debt:


Now here's the same chart in logarithmic scale:


It looks to me as if what happened is this. Starting at the end of World War II, American households began accumulating debt at a steady pace that continued uninterrupted throughout the Cold War, the Sexual Revolution, Ronald Reagan, the dot-com era, 9/11, the house price bubble, etc. Then since 2008 or so there's been a totally unprecedented process through which nominal household debt levels have declined. 

In part in response to that unprecedented deleveraging, the federal government has borrowed a lot of money at extremely low interest rates. Mathematically speaking, it's not possible for David Brooks to save money unless someone wants to borrow the money. If a country as a whole wants to become a net saver then it has to do what Germany did and lend the money to people residing abroad somewhere.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


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