But in fact, the seemingly exorbitant amount of consumer debt is in large part responsible for the prosperity we ve enjoyed these past few years. Debt explains the otherwise mysterious appearance of a consumption-driven boom at a time when real wages have been falling or stagnant. Today, credit-driven spending is at historic levels, accounting for about 29 percent of the growth in consumption in the expansion that commenced in 1991. From the standpoint of economic growth, there s no doubt the handy income supplement made possible by debt has been a lifesaver. But the corollary is a much larger number of bankruptcies, since stagnant wages and rising debt together mean that at some point people well, lots of people are inevitably going to default.
Debt also has ideological benefits.
By putting purchasing power into the hands of the vast majority without increased wages, it creates a fiction of social equality and sustains mass purchasing power even as income inequality widens. A million-odd bankruptcies is a small price to pay for such a handy illusion. Without the cushion of widely available credit, we d risk a broad economic contraction, not to mention a whole lot of demands for higher wages. Rising profits, meager wage growth, and manic consumption are what drives the Nineties boom. Someone s gotta pay and for the time being, the bill s going to Visa.