25 March 98
One of the most valuable resources ever developed, Credit has kept civillization rolling along for thousands of years. Arguably, it's only Renaissance inventions like stock, bonds, insurance, and other similar credit instruments that have made the modern world possible at all. But at no time has credit been of greater importance than the latter half of the 20th century.
If there's any one lesson the United States drew from World War II, it was that issuing War Bonds -- backed by nothing more than hope for a better future -- was a damned lucrative business to be in. Gearing up postwar America for a mass-production consumer economy provided all sorts of new tax revenues, allowing the bonds to paid off on schedule, and with proof-of-concept like that, who needed a world war to turn a buck? Lots more and more bonds were issued through the fifties and sixties, just for the hell of it.
What happens, though, when the better future you're banking on fails to arrive? When terrorism and oil embargoes and failed military excursions drop wrench after wrench into your economy while the welfare state grows and the population ages and people's inflated expectations drive them to demand better, cheaper goods and services than your domestic industry can provide?
Simple: you issue more bonds. Why earn your interest monies when you can simply collect them from the next generation of bond-buyers? The classic pyramid scheme, a proven money-maker. Granted, Charles Ponzi went to jail for doing this in 1920 after most of his investors went bankrupt paying off the minority who bought in early, but he never lost a dime on the deal. And that's the point, right?
During the seventies, and especially during the eighties, the U.S. Government and most of its constituent states lived on credit. Industry grew fat on Ponzically financed government contracts, building machines both real and imaginary to counter the threat of Soviet aggression, both real and imaginary. "Bicoastal" lifestyles, in which one or more family members maintained homes and work sites in widely separated cities and spent weekends flying back and forth between them, became commonplace. We all lived high in the go-go eighties, spending much and saving little, enjoying what seemed to be the last big party before the Russians -- or more likely, the Japanese -- finally stepped in and ate our lunch.
Then came the fall of communism, the end of the Cold War, a worldwide recession, and with these a sudden and dramatic redistribution of resources inside the United States. Most of the fat government contracts dried up, the aerospace industry tumbled, with other industries soon following. And how did we respond? With credit, of course, this time in the form of unemployment insurance for the third of America that suddenly found itself laid off.
Those times were tough, no question about it. Good jobs were hard to come by, and even bad ones were hard to hold onto. A lot of Americans really needed that assistance to carry them through the four or six or eight months it took to find their feet, or resignedly move back in with their parents, or whatever. It was a serious blow to America's dreams and work ethic, seeing so very many of our people phasing in and out of un- and underemployment, and a substantial minority, tens of thousands of Americans, took advantage of the confusion by simply pretending to look for work while their insurance paid off. Why bust a hump for $2000 a month, right, when you can get half as much for nothing? The welfare state had, at least temporarily, lost its stigma among the middle class.
And when that two-year benefits clock ran down, some of the happy-go-lunkheads found they hadn't finished any of the projects they'd hoped to tackle on their long vacation, and dumb-ass banks, emboldened by the S&L bailout of the late 80's, were perfectly willing to extend them -- what else? -- more credit. So in a tired, manic, 3:30 AM sort of way, the party staggered onward for a few more years, the bills going unpaid, the debts piling up...
But eventually, even the laziest of us have to get off our duffs; the patience of governments and other creditors is not without limit. By 1994-95, Loaf America was back at work, and this time in the sweatshops of efficiency their working brethren had been forced to create in their absence. And behold, after years of being a net drain on the economy, these individuals were finally generating revenue, paying taxes, buying down their debts, and saving money -- a quadruple-whammy on the positive side of the ledger. For the first time since World War II, the U.S. had neither a Cold War military-industrial complex nor a post-Cold-War welfare vacation complex to support.
No wonder our economy has soared.
There's still the crushing interest payment to bleed us -- equivalent to the purchase of about 60 international airports per year. That's a lot of dough, and we'll be paying it every year, possibly forever. But hell, by now we're debt experts, leaner and meaner than ever, able to raise payments like that as a matter of course. It's a momument to how strong America really is, that it can spend $300 billion dollars on nothing at all, every twelve months, and still manage to break even!
So I find it very amusing to see the present administration -- some of the luckiest beneficiaries of timing the world has ever seen -- taking a good look around at what market forces hath wrought, and doing that most fundamental, most quintessential of all political activities -- you guessed it -- taking credit.
See last quarter's rant.
Return to Wil McCarthy's home page.