Credit and Inequlity

Some interesting observations from John Quiggin about easy credit in the United States:

The relatively generous treatment of debtors in the US seems to illustrate, at the national level, a pattern found among US states. Pro-debtor institutions are, in political terms, a substitute for redistributive taxation.

Where credit is easy, and the consequences of non-repayment are not too drastic, households can maintain consumption for long periods even when their income is falling. So, the political resistance to pro-rich policies is much less sharp. The massive increase in income inequality in the US since 1970 has coincided with an equally massive boom in consumer credit.

But as he points out, the equilibrium looks a bit shaky at the moment. The dominance of the pro-rich-people political movement in the United States set the condition for the recent bankruptcy reform which made it much harder for people to get out of their credit card debts. That, combined with declines in the housing market, has led to the increase in jingle mail that we're now seeing. Financial institutions will surely want protection from that, too.