Academic

The Great (Debt) Seduction--Skeel

By David Skeel and Bill Stuntz

David Brooks argued in his column yesterday that traditional norms of thrift and frugality have been displaced in America by norms that ?encourage debt and living for the moment.? Among the causes of this shift, he blames state governments? promotion of the lottery, pay day lenders, credit card companies, and Congress?s own profligacy with debt. The column is well worth reading, as is the think tank report he discusses, ?For a New Thrift: Confronting the Debt Culture.?

Two thoughts on these issues:

1) Gambling and Risky Debt. It seems to me that the state lawmakers? aggressive promotion of lottery play, and the culture that creates, makes it much harder than it should be to criticize borrowers who gambled on subprime mortgages in recent years. The states themselves have been sending a message that rolling the dice is a good thing. (In a notorious New York ad from a few years ago, a mother poked fun at her hardworking daughter, saying there?s no need to study because the mother had bought lottery tickets).

Will the pernicious effect of gambling on financial responsibility be a big campaign issue this summer and fall? Not likely.

If you wonder why, think for a moment about how much money the states get from gambling, and the consequences if that money disappeared: more taxes (enough to keep Republicans quiet), fewer programs (silence on the Democratic side). And many states direct some of the proceeds to a politically powerful, middle class constituency. Here in Pennsylvania, it?s ?elder Pennsylvanians.? In Georgia, its full scholarships to the University of Georgia for good (disproportionately middle class) students.

2) Evangelicals and usury regulation. As one response to the culture of debt, Brooks suggests that ?usury laws could be enforced and strengthened,? to counteract the fact that payday lenders ?seductively offer fast cash? at absurd interest rates? to 15 million people each month.? For the past few weeks, I?ve been carrying around a fascinating article by Steven Graves and Chris Peterson called ?Usury Law and the Christian Right.? Graves and Peterson plotted every payday lender they could find (24,000) on a map and compared the density of payday lenders in a political district to the relative strength of evangelicals and Mormons. They found a remarkable (and to my mind, not surprising) correlation: the greater the influence of the Christian Right (as they define it), the higher the concentration of payday lenders. Graves and Peterson do not attempt to determine why evangelical influence is correlated with more payday lenders. I strongly suspect the connection, which I find disheartening, is due to evangelicals? aversion for much of the twentieth century to social legislation, something I?ve discussed on this blog before. It?s free markets taken a little too far.

Full post as published by Less than the Least on June 11, 2008 (boomark / email).