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> This does not imply causality as the author mistakenly assumes. Maybe the bottom 10% have more debt simply because costs are rising faster than wages and abil

> This does not imply causality as the author mistakenly assumes. Maybe the bottom 10% have more debt simply because costs are rising faster than wages and ability to save. Maybe the rich can save more because thy earn more. You can't choose one sentence and refute the whole article based on it. It's a part of a whole. The point of the article is to make that causal link.

rsj_hn 5y ago
The one sentence is representative of a lack of causal arguments and the use of whimsical speculation to replace providing evidence for said casual arguments. I could argue that liberalization of global capital flows allowed significant foreign investment leading to an abnormally low interest rate regime, which is why everyone (rich and poor) has taken on more debt, and I guarantee you that the rich take on far more debt than the poor. But as the poor tend to have mostly human capital on their balance sheet while the rich have assets, it creates an appearance that the poor have net debt (which they do not) while the rich have net assets (which they do). In fact both the poor and rich are solvent -- have more assets than debt, but the assets of the poor are future wage earnings. Thus in any reduction of interest rates, the poor will disproportionately benefit over the rich and will take advantage of this to increase borrowing. E.g. if you are rich then both your assets and your liabilities will grow in lockstep (at the macro level). But if you are poor, then your assets are your wages which do not grow in lockstep with interest rates. Thus a reduction of interest rates disproportionately helps the poor to borrow more but an increase disproportionately hurts their ability to borrow. These are just some of the interesting effects when you seriously look at debt-dynamics and interest regimes. But in no regime can you make a case that the mere existence of the rich somehow causes the poor to borrow. Yet the reason for low interest rates and the fact that such low rates are responsible for both the behavior of the rich and poor are not covered in this piece. In fact it used to be the case that Rebecca's predecessors would bemoan the fact of how the poor were locked out of credit markets and thus unable to participate in the wealth-creating business of taking on debt to purchase long-lived assets, and thus they had to rent an apartment instead of being able to buy a house, or could not borrow to get a more reliable car on credit, etc. Now that those barriers have been substantially reduced, there is lots of hand-wringing about how the poor are taking on debt. This amnesia is funny to those of us who have been following this debate from times when rates were much higher and the poor borrowed very little. Then the complaint was "why are the rich locking the poor out of credit markets?" Resentment can be stoked in any situation. It is particularly hilarious because Keynes advocated for lowering interest rates in order to "euthanize the rentier" and he blamed the rentier class for keeping rates higher than they should have been. E.g. he blamed the rich for high interest rates. Now the argument is that rich are to blame for low interest rates. Keynes would be rolling over in his grave. But the persistent theme seems to be that the rich are to be blamed. In fact there is nothing wrong with taking on debt. What matters is your ability to service the debt, and in a low interest rate regime, that service capacity is substantially increased, and thus so are debt levels. Perhaps this is not worth the trade off of increased financial fragility. Or perhaps it is -- data must be required and real arguments made. But merely the existence of the debt levels themselves -- again held both by poor and rich -- are not something to be avoided. This blog post doesn't attempt to engage with any of this literature or provide any fact-based arguments about casual mechanisms or whether something is beneficial or harmful. It's just more hand-wringing, which is a shame as debt-dynamics, interest rate regimes, global investment flows and credit constraints are important topics that deserve to be treated seriously rather than as a political football in the resentment olympics.

rsj_hn 5y ago

The one sentence is representative of a lack of causal arguments and the use of whimsical speculation to replace providing evidence for said casual arguments. I could argue that liberalization of global capital flows allowed significant foreign investment leading to an abnormally low interest rate regime, which is why everyone (rich and poor) has taken on more debt, and I guarantee you that the rich take on far more debt than the poor. But as the poor tend to have mostly human capital on their balance sheet while the rich have assets, it creates an appearance that the poor have net debt (which they do not) while the rich have net assets (which they do). In fact both the poor and rich are solvent -- have more assets than debt, but the assets of the poor are future wage earnings. Thus in any reduction of interest rates, the poor will disproportionately benefit over the rich and will take advantage of this to increase borrowing. E.g. if you are rich then both your assets and your liabilities will grow in lockstep (at the macro level). But if you are poor, then your assets are your wages which do not grow in lockstep with interest rates. Thus a reduction of interest rates disproportionately helps the poor to borrow more but an increase disproportionately hurts their ability to borrow. These are just some of the interesting effects when you seriously look at debt-dynamics and interest regimes. But in no regime can you make a case that the mere existence of the rich somehow causes the poor to borrow. Yet the reason for low interest rates and the fact that such low rates are responsible for both the behavior of the rich and poor are not covered in this piece. In fact it used to be the case that Rebecca's predecessors would bemoan the fact of how the poor were locked out of credit markets and thus unable to participate in the wealth-creating business of taking on debt to purchase long-lived assets, and thus they had to rent an apartment instead of being able to buy a house, or could not borrow to get a more reliable car on credit, etc. Now that those barriers have been substantially reduced, there is lots of hand-wringing about how the poor are taking on debt. This amnesia is funny to those of us who have been following this debate from times when rates were much higher and the poor borrowed very little. Then the complaint was "why are the rich locking the poor out of credit markets?" Resentment can be stoked in any situation. It is particularly hilarious because Keynes advocated for lowering interest rates in order to "euthanize the rentier" and he blamed the rentier class for keeping rates higher than they should have been. E.g. he blamed the rich for high interest rates. Now the argument is that rich are to blame for low interest rates. Keynes would be rolling over in his grave. But the persistent theme seems to be that the rich are to be blamed. In fact there is nothing wrong with taking on debt. What matters is your ability to service the debt, and in a low interest rate regime, that service capacity is substantially increased, and thus so are debt levels. Perhaps this is not worth the trade off of increased financial fragility. Or perhaps it is -- data must be required and real arguments made. But merely the existence of the debt levels themselves -- again held both by poor and rich -- are not something to be avoided. This blog post doesn't attempt to engage with any of this literature or provide any fact-based arguments about casual mechanisms or whether something is beneficial or harmful. It's just more hand-wringing, which is a shame as debt-dynamics, interest rate regimes, global investment flows and credit constraints are important topics that deserve to be treated seriously rather than as a political football in the resentment olympics.