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The following article appeared in Left Business Observer #97, May 2001. It retains its copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.

Debts everywhere

It's been a staple of left writing over the years - a concern shared by some traditionalists on the right - that the U.S. economy has a serious debt problem. To traditionalists, the rampant use of debt is yet another sign of moral decline. To lefties, it's yet another sign of the unsustainability of capitalism. Both share the sense that there will be some hell to pay. So far, hell hasn't arrived demanding payment, so the debt numbers keep creeping northward. Either this means that all the worries, common since the 1970s, are misplaced, or that the Satanic bill collector's arrival, whenever that happens, will be more apocalyptic for every delay.

Here's a rehearsal of some of the reasons to be worried. While the federal government has been busily paying off its debts - and state and local ones never had much of a debt problem to begin with -U.S. households and businesses haven't had a date with prudence in a decade. And the U.S. as a whole has been running up its debts to foreign creditors at a vigorous pace for almost 20 years.

The charts tell most of the story, but a few words about each might help. The first shows the ratio of household debts to after-tax income, the best way to measure the level of debt over time, since dollar amounts alone would be fairly meaningless, given inflation and economic growth. There are two major kinds of personal debt - "consumer, " which means mostly credit cards, and mortgages, which are mostly on owner-occupied housing. Though credit card debt has been rising steadily - from a total equal to about 18% of after-tax income ten years ago to 22% today - that rise is dwarfed by the increase in mortgage debt, as people take out more aggressive mortgages (putting down little or no money at the outset) or borrow against the value of their houses to buy projection TVs or pay orthodontist bills. Looked at another way, homeowners' equity equaled 83% of the value of their real estate in 1950, 69% in 1980 - and 54% at the end of last yea