The headlines are alarming. The New York Times panicked that Americans are “Running in Debt” and just a few years later warned that Americans were “Borrowing Trouble.” Business Week asked, “Is the Country Swamped with Debt?” and U.S. News and World Report worried that “Never Have So Many Owed So Much.” Harper’s even expressed fear that “Debt Threatens Democracy.”
A labor leader bemoaned the improvidence of America’s consumers: “Has not the middle class its poverty? Very few among them are saving money. Many of them are in debt; and all they can earn for years, is, in many cases, mortgaged to pay such debt.”
An academic report concluded that consumers’ promiscuous borrowing has “‘lured thousands to ruin’ encouraging people to buy what they could not pay for and making debt ‘the curse of countless families.'” And not merely the poor and improvident were lured into ruin, but upstanding middle-class families as well, as they engaged in a heated rivalry of conspicuous consumption with their neighbors.
An indictment of our times? Not exactly. The first headline from The New York Times, as well as the labor leader’s concerns, were both from 1873, and the latter Times headline from 1877. The academic report appeared in 1899 and criticized the availability of installment credit, or the practice of buying consumer goods “on time.” Thorstein Veblen voiced his concerns about “conspicuous consumption” and Americans’ willingness to go into hock to fund it in 1899. The Business Week and U.S. News and World Report headlines ran in 1959. And Harper’s fretted that “Debt Threatens Democracy” in 1940.
OK fair enough. We get the point.
Or do we? Consider the NYT article warning that Americans were “Running in Debt.” When Zywicki tells us it was from 1873, rather than last Tuesday, he clearly wants us to go, “Oh! Ha ha, what a relief. People have been wringing their hands over debt for more than a century. We can calm down and tune out today’s Chicken Littles.”
But there’s this historical event called the Panic of 1873. Here’s the Wikipedia article:
The Panic of 1873 was a financial crisis that triggered a depression in Europe and North America that lasted from 1873 until 1879, and even longer in some countries. In Britain, for example, it started two decades of stagnation known as the “Long Depression” that weakened the country’s economic leadership. The Panic was known as the “Great Depression” until the events in the early 1930s set a new precedent.
So, what would have had to happen, for the 1873 NYT article to be considered prescient? They experienced what was the worst economic crisis in U.S. history to that point, at least according to some historians. (I think there has been revisionism on this point, but you get the gist of what I’m saying I hope.)
Or what about the Harper’s piece fretting about democracy in 1940? Was the world in general, or the U.S. in particular, swimming in a great civilian economy with all sorts of political liberty, from 1940 onward? Or, on the contrary, was that arguably the worst decline–both in civilian lifestyle and civil liberties–that Americans had experienced since the Civil War?
It would not surprise me in the slightest if people were worried about a housing bubble in the year 2050, and then someone dug up a transcript of Peter Schiff from 2006 in order to convince people in 2050 that they had nothing to worry about. Ha! People have been warning about housing collapses for decades!
NOTE: Don’t misunderstand me; I only skimmed it, but I probably agree with the spirit of Zywicki’s article. And of course, I don’t think it was consumer debt in 1940 that led to the misery that followed.
My simple point is that it’s weird to point to at least two warnings that, on the surface, came true, as proof that today’s warnings are misguided.
You see this in other areas too. For example, Keynesians love to make fun of government officials who said going off gold in the early 1930s was “the end of Western civilization.” Well, wasn’t it? We only have correlation, not causation, to be sure, but Western civilization certainly took a beating in the 1930s and 1940s.
Or what about the people who laugh at the fuddy duddies warning about Elvis shaking his hips on TV and the sexual revolution? Do you think those people would come to our world, and see virtually naked women beamed into our faces in every retail outlet, including the checkout lines at grocery stores, and conclude, “Huh, I guess we overreacted” ?