Nonetheless, this latest phase in the development of bankruptcy has brought loud public calls for a revival of the old pre-capitalist horror toward debt. Credit industry hacks and their minions on the Hill have taken up the mantle of personal responsibility, and have sought to transform the Nanny State into the Daddy State, a stern Federal superego that will scold debtors along with pregnant teens, divorcees, and other bearers of bad values. Bankruptcy has become like a carwash. People go in, spend a little time inside and come out spotless, laments Mallory Duncan of the National Retail Federation, apparently longing for the days of public stocks and debtor s prison. Bankruptcy is becoming a financial strategy for too many Americans, moans Donald Ogilvie, executive vice president of the American Bankers Association, in a letter to The Wall Street Journal.
Bankruptcy is a crucial safety valve for an economy that depends on mass consumption and low wages.
If the real cause of the rising number of bankruptcies was some sudden erosion of moral fiber, it would be testament to the malleability of the human spirit. In fact, we really don t need to juice up our econometric model with a virtue variable to see what has caused the rise in bankruptcies. In other words, as people began to borrow to make up for stagnant wages, bankruptcies started to rise. It s commonplace to blame the rise in bankruptcies on the new bankruptcy code, which, starting in late 1979, made it easier to discharge credit card debt. But bankruptcies had actually been climbing throughout the Seventies, from 173,000 personal and business bankruptcies in 1973 to 254,000 in 1975, before falling slightly to 226,000 in 1979.