How Thomas Piketty and Elizabeth Warren demolished the conventional wisdom on debt

[DonViejo]

Those who fall into debt are shamed for spending irresponsibly. But the truth of the matter is much more alarming

SEAN MCELWEE

In a 2006 “Saturday Night Live” sketch, Chris Parnell sums up the conventional wisdom about credit card debt:

“Did you know millions of Americans live with debt they can not control? That’s why I’ve developed this unique new program for managing your debt. It’s called, Don’t Buy Stuff You Can’t Afford.”

According to the prevailing story, debt is caused by lavish and irresponsible spending by poor and middle-class families. But like much “conventional wisdom,” an increasing amount of evidence belies this point. In fact, the decline of saving and the rise of debt was an almost inevitable consequence of families trying to scrape by in the face of rising inequality. This is the corollary of French economist Thomas Piketty’s now-famous observation: While capital is increasingly concentrated at the top, it turns out that debt is becoming concentrated at the bottom.

In the same “SNL” bit, Amy Poehler says, “There’s a whole section in here about buying expensive things using money you save.” This supposedly common-sense observation is mirrored elsewhere. The American Institute of CPAs runs an advertising campaign urging people to “Feed the Pig.” One such ad depicts a responsible couple studiously saving for a house, while another eats lobster, receives massages and then complains about “never having enough to put away.” Underlying both the real commercial and the satirical one is the idea that those who aren’t saving could do so, but are instead spending the money. But the evidence for this story is weak.

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http://www.salon.com/2014/05/18/how_thomas_piketty_and_elizabeth_warren_demolished_the_conventional_wisdom_on_debt/

[Warpy]

1. Piketty's conclusion that government has little to do with the health of an economy

is bugging the hell out of me and I've only kicked and clawed my way through a quarter of the book. It's well researched and well thought out but examining the US would show him that the government does have a profound effect on the economy.

In Europe, their large and stable middle class was created by the welfare state, wherein people didn't have to worry about losing a job, producing a baby, adequate vacation time, and no fear of getting too sick to work for a large chunk of time. In the US, a large and stable middle class was created by high taxes on the richest being circulated to the bottom in the form of public works jobs. Both are government strategies.

Still, it's fun to see him butcher down one right wing sacred cow after another.