Borrowed Prosperity: The Astrology of Consumer Debt
JOHN E. SILVIA
In 1956, total outstanding consumer debt was, by modern standards, a paltry 9.5 percent of personal disposable income. And yet, back in the age of mellow Ike, such indebtedness was viewed with alarm. One would-be vizier shouted aloud the warning chant, "The enormous gain included 'borrowed prosperity' supported by an accumulation of consumer credit that could not be maintained. A rise in consumer's credit so out of proportion to the rise in national product must eventually overburden the consumer's budgets with required payments."1
Our friendly forecaster's predictions in 1956 appear to have ended up somewhat wide of the mark. Since that time, the ratio of consumer debt to personal income has increased (Figure 13.1). Today, consumer debt is inching up to 19 percent of personal disposable income, and as of yet, the world has not come to an end. But forecasters, as they have done for the past 32 years, still warn that the "end is nigh."
To simply denigrate a prediction made so many years ago misses the kernel of truth contained in the admittedly inaccurate forecast. Fear of excessive debt in relation to the ability to service that debt is not an economist's version of astrology. Debt does have its limits, if only the tautological limit that debt cannot be so great that the cost of servicing it exceeds total income.
Everyone hates their liabilities and loves their assets. Designated as a liability, consumer debt surely is to be hated. Future interest and principal payments