Monday, July 27, 2015

Debtor Nation

Louis Hyman. Debtor Nation: The History of America in Red Ink. Princeton: Princeton University Press, 2011. 

          In Debtor Nation, Louis Hyman argues that in order to understand America’s personal debt crises, the role of American markets and policy must be understood. To understand this, Hyman traces the evolution of debt throughout the twentieth century as it transformed from “the margins of the economy” into “the entirety of the American economy” (1). He states that once personal debt became legal, sellable, and profitable, “it assumed a new role within American capitalism” (1).
            Debtor Nation begins in the 1920s with an examination of installment credit and the impact on consumers and retailers. This financing option allowed working and middle class consumers to buy goods such as automobiles on a payment schedule. For retailers, this meant relying on credit to generate sales. In the 1930s, the government responded to the collapse of the housing market with longer-term amortized loans. Since the demand for commercial loans decreased, banks had to look into other investment opportunities. Instead of investing in risky personal loans, banks invested in Federal Housing Administration (FHA) loans.
            The evolution of credit continued during World War II with government attempts to fight inflation. The government tried to suppress consumer demand by instituting minimum payments and maximum contract lengths for installment credit. This regulation urged businesses to circumvent restrictions, which resulted in the expanding of revolving credit that led to “fantastic sales growth and increased profits” (130). By 1950s and 1960s, Hyman states that “Americans borrowed their way to prosperity” (132). Although the value of extended loans increased every year, rising incomes and tax incentives kept the growth rate of outstanding debt steady. The liberal credit limits department stores set on their credit cards led to economic success. This success influenced banks to start their own bank card programs.
            The late 1960s demonstrated just how essential credit was to the lifestyles of America’s middle-class. Hyman writes that, “[h]ome buyers borrowed their mortgages, financed their cars, and charged their clothes” (173). Even though credit was readily available, discrimination against African Americans and women occurred leading to a two-tiered credit system. Community activists and legislators called for credit reform for fair credit for all. Consequently, in the 1970s, computer-based credit models materialized, increasing credit availability to African Americans and women.
            By the 1980s, credit card investments evolved from marginal profits to being the leading source of investments. In the early 1990s, these profits doubled, equaling investments in business loans. At the end of the decade, credit card and mortgage debt were financed through securities markets. Even though the book ends before today’s financial crisis, Hyman states that “the current financial crisis, rooted in those credit instruments, occurred not because capitalism failed, but because it succeeded” (284).
             New Left historians of the 1960s and 1970s focused on the social movements of marginalized minority groups, women, and the labor movement. Hyman is a part of a cohort of historians who were influenced by New Left historians who focused on the intersection of race, class, and gender. These historians focus on the history of capitalism from the bottom to the top. They examine the history of capitalism from the choices made by everyday consumers up to those made by big businesses and government. These historians think about and seek answers to economic questions so that better choices in the future can be made. 

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