ISMAIL LAGARDIEN: Excessive spending and credit keeps US society together
Americans’ predilection for spending seems like a cross between the freedom they believe makes them unique and a type of superpower syndrome
09 October 2024 - 05:00
byIsmail Lagardien
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An American flag flies near Congress in Washington, DC, the US. Picture: EPA/SHAWN THEW
There is growing diversion, observed by the Financial Times last week, between the US and Europe. Americans are spending excessively, with high levels of debt, while Europeans are saving obsessively.
It would seem reckless on the part of Americans — taking on excessive debt is gambling with the future. But to many Americans it seems to be what keeps their dreams alive.
This apparent recklessness has been apparent for several years. Data produced in 2020 shows that Europeans responded to the Covid-19 pandemic by “stashing away hundreds of billions of euros in their bank accounts”, as Bloomberg reported in June that year.Four years later, the household saving ratio in the eurozone had risen to a three-year high of 15.7% in the three months to June this year, well above its pre-pandemic level.
My rather conservative mantra is to put my money in the bank and avoid spending money I don’t have, so it seems to me that Europeans are being sensible in saving for the future. They are “anxious” in the words of the Financial Times.
In the US, consumers are spending, and it is not the panic buying of the early Covid-19 period. American spending seems to be more apocalyptic. I struggle to find a better word, though “bring it on” or “devil take the hindmost” may be good descriptors. In this sense American consumers are either optimistic about the future and spending their way to a better tomorrow, or pessimistic because they fear there will be no tomorrow.
Much of this spending is with credit cards. This year’s data has yet to be fully produced and assembled, but by the end of 2023 American credit card debt levels had reached “a new, but undesirable, milestone”, in the words of the Federal Reserve Bank of New York. It reported in August last year that US credit card debt had surpassed $1-trillion for the first time. To put that into perspective, late last year the US national debt stood at $34-trillion.
With apologies to geneticists and evolutionary biologists; debt is in the DNA of the US. This reference to “genes” is not as ridiculous a claim as it may seem. Alexander Hamilton, one of the founders of the US and “father” of that country’s economy, believed that a consolidation of debt across society could be “a national blessing” and “the powerful cement to our union”. This is of course one way of reading Hamilton’s statements, but pair it all with Benjamin Franklin’s emphasis that credit was money.In this way we get to America as a society of people culturally and genetically predisposed to economic risk.
“The American is equipped with more than just a hopeful vision of the future and a drive for self-improvement. He is prepared to take enormous risks to attain his ends... This appetite for risk — so great one might say it was imprinted in American genes — has not diminished with time but remains a continuing source of the nation’s vitality,” wrote financial historian Edward Chancellor.
“The country was literally built on debt [and] costly wars proved to be a theme,” reported CBS news after consultation with Christopher Phelan, an economics professor at the University of Minnesota.
America’s Revolutionary War placed that country $75m in the red. The Civil War raised that debt from $65m in 1860 to nearly $3bn in 1865, when the war ended. Debt was at $49bn immediately before the US entered World War 2, and when the war ended it was $260bn. Debt began rising rapidly again in the 1980s and was accelerated by American wars abroad, the Iraq wars and the 2008 Great Recession. Debt “made another big jump thanks to the pandemic, with the federal government spending significantly more than it took in to keep the country running,” Phelan told CBS news earlier this year.
Setting aside all standard economic theories — which are self-serving, anyway — there seems to be an almost apocalyptic view about spending in the US. One cautious conclusion is based on some of my earliest findings on American approaches to the global climate crisis, which revealed three or four trends: we must save the planet because it’s our only habitable place. God gave us the planet so why can’t we exploit it fully? We’re all going to die so it doesn’t matter what happens to the place we leave behind.
Americans’ predilection for spending, and the devil take the hindmost, seems like a cross between the freedom they believe makes them unique and a type of superpower syndrome (we can do as we wish and avoid the horror in the mirror). For instance, in the aftermath of Hiroshima and Nagasaki many American officials could not bear the sight of what they had done. Others were sent to witness and detail the destruction, while the Americans cast that holocaust as necessary “to stop the war” and permissible because, war (is) above all, about breaking and destroying people and their places.
Perhaps the founders of the US, Hamilton and Franklin, were right, credit and excessive spending is what keeps Americans together. It is necessary to keep the American dream alive.
• Lagardien, an external examiner at the Nelson Mandela School of Public Governance, has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
ISMAIL LAGARDIEN: Excessive spending and credit keeps US society together
Americans’ predilection for spending seems like a cross between the freedom they believe makes them unique and a type of superpower syndrome
There is growing diversion, observed by the Financial Times last week, between the US and Europe. Americans are spending excessively, with high levels of debt, while Europeans are saving obsessively.
It would seem reckless on the part of Americans — taking on excessive debt is gambling with the future. But to many Americans it seems to be what keeps their dreams alive.
This apparent recklessness has been apparent for several years. Data produced in 2020 shows that Europeans responded to the Covid-19 pandemic by “stashing away hundreds of billions of euros in their bank accounts”, as Bloomberg reported in June that year. Four years later, the household saving ratio in the eurozone had risen to a three-year high of 15.7% in the three months to June this year, well above its pre-pandemic level.
My rather conservative mantra is to put my money in the bank and avoid spending money I don’t have, so it seems to me that Europeans are being sensible in saving for the future. They are “anxious” in the words of the Financial Times.
In the US, consumers are spending, and it is not the panic buying of the early Covid-19 period. American spending seems to be more apocalyptic. I struggle to find a better word, though “bring it on” or “devil take the hindmost” may be good descriptors. In this sense American consumers are either optimistic about the future and spending their way to a better tomorrow, or pessimistic because they fear there will be no tomorrow.
Much of this spending is with credit cards. This year’s data has yet to be fully produced and assembled, but by the end of 2023 American credit card debt levels had reached “a new, but undesirable, milestone”, in the words of the Federal Reserve Bank of New York. It reported in August last year that US credit card debt had surpassed $1-trillion for the first time. To put that into perspective, late last year the US national debt stood at $34-trillion.
With apologies to geneticists and evolutionary biologists; debt is in the DNA of the US. This reference to “genes” is not as ridiculous a claim as it may seem. Alexander Hamilton, one of the founders of the US and “father” of that country’s economy, believed that a consolidation of debt across society could be “a national blessing” and “the powerful cement to our union”. This is of course one way of reading Hamilton’s statements, but pair it all with Benjamin Franklin’s emphasis that credit was money. In this way we get to America as a society of people culturally and genetically predisposed to economic risk.
“The American is equipped with more than just a hopeful vision of the future and a drive for self-improvement. He is prepared to take enormous risks to attain his ends... This appetite for risk — so great one might say it was imprinted in American genes — has not diminished with time but remains a continuing source of the nation’s vitality,” wrote financial historian Edward Chancellor.
“The country was literally built on debt [and] costly wars proved to be a theme,” reported CBS news after consultation with Christopher Phelan, an economics professor at the University of Minnesota.
America’s Revolutionary War placed that country $75m in the red. The Civil War raised that debt from $65m in 1860 to nearly $3bn in 1865, when the war ended. Debt was at $49bn immediately before the US entered World War 2, and when the war ended it was $260bn. Debt began rising rapidly again in the 1980s and was accelerated by American wars abroad, the Iraq wars and the 2008 Great Recession. Debt “made another big jump thanks to the pandemic, with the federal government spending significantly more than it took in to keep the country running,” Phelan told CBS news earlier this year.
Setting aside all standard economic theories — which are self-serving, anyway — there seems to be an almost apocalyptic view about spending in the US. One cautious conclusion is based on some of my earliest findings on American approaches to the global climate crisis, which revealed three or four trends: we must save the planet because it’s our only habitable place. God gave us the planet so why can’t we exploit it fully? We’re all going to die so it doesn’t matter what happens to the place we leave behind.
Americans’ predilection for spending, and the devil take the hindmost, seems like a cross between the freedom they believe makes them unique and a type of superpower syndrome (we can do as we wish and avoid the horror in the mirror). For instance, in the aftermath of Hiroshima and Nagasaki many American officials could not bear the sight of what they had done. Others were sent to witness and detail the destruction, while the Americans cast that holocaust as necessary “to stop the war” and permissible because, war (is) above all, about breaking and destroying people and their places.
Perhaps the founders of the US, Hamilton and Franklin, were right, credit and excessive spending is what keeps Americans together. It is necessary to keep the American dream alive.
• Lagardien, an external examiner at the Nelson Mandela School of Public Governance, has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.
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