Why do we borrow so much?

The level of debt in America is astounding. According to the Center for American Progress, the typical (median) American family owes $97,000 on their home (up from $77k in 2001), $11,000 on their car (up from $10k in 2001), $7,800 on education loans and $2,640 for goods and services.

The typical reason you hear for this explosion in debt is that Americans are extravagant, undisciplined. We are given to “flabby self gratification” according to one observer quoted in the NY Times magazine.

The truth is much more complicated. As the Times put it in its special magazine issue on “The American Way of Debt” much debt is due to people who are trying to keep up appearances despite financial reversals (such as losing their job), while the less affluent “…have resorted to borrowing for groceries as well as cars.”

“Public policies have intensified their plight. The freezing of the minimum wage, the tightening of unemployment insurance and workmen’s compensation programs, the shifting of the tax burden from the rich to the rest — these changes have starved public service while leaving ordinary Americans more dependent than ever on debt.”

The number of people filing bankruptcy is skyrocketing, and about half of these are caused by medical bills.

As the Times puts it, “Whatever else our current indebtedness may signify, it is hardly a riot of hedonism.”

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