On May 17th, the Asset Building Program hosted author and historian Louis Hyman to discuss his new book Borrow: The American Way of Debt. Janis Bowdler from the Wealth Building Policy Project at the National Council of La Raza contributed her take on the book and Reid Cramer moderated the discussion.
Louis Hyman began by identifying commonalities between economic conditions in the 1920s and the mid-2000s. He noted that rising economic inequality and a surge in the creation of credit products accompanied both time periods. As a historian, Hyman seeks to challenge popular narratives of history: for example, he pokes holes in the idea that people in the early part of the twentieth century were not borrowing and utilizing credit. In fact, Hyman noted, the “new” products in the market that did so much damage in the 2000s were in many cases revived versions of products that had debuted in the 1920s. Hyman argues that these products became the foundation of the new economy and contributed to a system-wide shift in risk. Hyman used a graph of wages and GDP over the twentieth century to illustrate another key point: namely, that the rise in credit since the 1960s has served as a substitute for stagnant wages. GDP continued to rise but average wages have not kept pace. He explains this trend both in its economic and cultural implications. The decline in a manufacturing economy combined with a broad cultural acceptance for credit created a system that was highly reliant on the creation of new credit products. Lending, he argues, has become disconnected from the concept of investment. Why, he wonders, is lending to consumers a more popular and lucrative business opportunity than lending to businesses?
Janis Bowdler argued that despite economists’ insistence, markets are not value-neutral. Instead, she points out that markets seek out the weakest link in a system and exploit vulnerabilities for profit. She also stressed that credit markets have not been experienced equally by all Americans. Americans of color and low-income people were excluded from credit opportunities for decades. In recent years, access to credit is more wide-spread but the quality of credit options remains uneven. The rise in subprime lending and racially discriminatory lending (the source of the recent $25 billion mortgage settlement) are evidence of this pattern. Bowdler remarks that as the United States shifts to a “majority-minority” nation (namely, one where people of color, not whites, are the majority) the ramifications of a “financial underclass” will be all the more pronounced. She makes the case that we must address a two-tiered credit system in order to prosper as a unified country. Bowdler also makes the case for humanizing the consumers involved in credit markets. While popular media may posit people in debt as irresponsible, most are struggling to meet basic needs and using credit is their only way to subsist in the short term. Last, she looks to define the dimensions of “good lending.” Bowdler worries that while we see examples of socially responsible lending at the micro level we have yet to see any scaled initiatives.
The question and answer session with the audience saw Hyman and Bowdler discussing the issue of financial regulation: who is best positioned to regulate the market? Both were in agreement that the consumer is frequently the least equipped to regulate markets and is therefore most vulnerable in these transactions. Audience members also pressed Hyman and Bowdler to reflect on the parallels between consumer debt and student loan debt, and more broadly on the relationship between individual debt and the national debt.