From the Los Angeles Review of Books, June 21:
THE AMERICAN WAY of life has long meant living beyond one’s means. Take the experience of the average millennial, who attended college by accruing a median amount of $20,000–$25,000 in student loans. While on campus, she opened her first credit card and began using it to buy clothes, plane tickets, and groceries. When she graduated, she earned a salary of about $60,000, which she used to pay down her debt, while at the same time incurring new debts to pay for vacations, computers, phones, and cars. She’ll rent until she eventually secures a mortgage for a house, and if she experiences a health emergency, the state won’t cover much, so she will pay for care using credit. Twenty years after graduating college, she will still be in debt.
If this sounds like a peculiar system, it is. European governments, by contrast, spend a great deal to allow households to pay less for school, to start saving early, and to avoid small debts for everyday purchases. Europeans pay more in taxes, but this relieves them of the need to secure as much credit for housing, since more affordable options exist, as well as for medical care. Europeans grew accustomed to carrying multiple currencies across borders, and they maintained this preference for cash without ever adopting the United States’ culture of credit.
The difference is rooted in an economic philosophy. Just as credit is necessary to afford the American standard of living, so is a high-spending consumer the key to sustaining the country’s growth. “As the U.S. consumer goes, so goes the U.S. economy,” is how the White House recently put it, attributing two-thirds of our economy to what consumers spend, as opposed to what they might have saved or invested. Credit is encouraged because—so the thinking goes—more spending stimulates the economy, which purportedly raises wages, helping consumers repay old debts and take on new ones. By normalizing household borrowing, the United States helped create the conditions—and the expectation—for low-cost, widely available loans, leading Americans to rack up $12 trillion in mortgages, $1.6 trillion in car loans, and $1.6 trillion in student loans.
Out of this economic philosophy emerged a seemingly natural by-product: the credit card. Between 1968 and 2000, use of this type of credit increased from $2 billion to a remarkable $626 billion, a period in which the US economy grew over 10 times. Credit cards fed this growth by enabling the consumer to finance everyday expenses beyond their earning power, which in turn fattened their wallets with so much plastic that they developed back injuries. Today, 191 million Americans have at least one credit card, and they swipe them a lot: last year, the country accumulated over $1 trillion in credit card debt.
Sean H. Vanatta, a historian at the University of Glasgow, shows, in his new book Plastic Capitalism: Banks, Credit Cards, and the End of Financial Control, that this system is a different type of credit altogether, with serious consequences. Vanatta argues that credit cards, which began as convenient plastic doodads with “gee-whiz novelty,” helped bankers shift the center of consumer finance from their neighborhood bank to an unsolicited credit offer arriving in the mail. In the process, bankers seized political power from the consumer, redesigning credit cards in a way that ultimately conflicted with the country’s idea of what credit should be—no longer freeing consumers to spend more but instead trapping them in debt they couldn’t afford....
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