It was Polonius who advised, “Neither a borrower nor a lender be,” and America at the dawn of the Obama era was approaching that blessed state.
A man who borrows $400,000 for a house he cannot afford isn’t really a “borrower,” is he? After all, by 2008 every politician agreed that the priority was to keep people in “their” homes, and the Congressional Progressive Caucus was soon calling for a “moratorium on foreclosures,” which is a polysyllabic way of saying there’s no need to make your monthly payments.
In what sense then is such a man “borrowing”?
And the banker who loaned the 400 grand isn’t a “lender” of anything terribly real, is he? Not in an era of banking as performance art. “We refused to touch credit default swaps,” the author and investment adviser Nassim Taleb said. “It would be like buying insurance on the Titanic from someone on the Titanic.”103 But a lot of people did just that. The Canadian commentator Jay Currie, waxing lyrical, put it this way: “If two people make a bet on the fall of a raindrop and each puts up, say, their shoes, the bet is a real bet. If they put up cash it is very close to a real bet. IOUs are not much of a bet. Someone else’s IOUs? Still less of a bet. A good deal of imaginary money is going to money heaven, which is sort of like saying that your stuffed animal is dead.”104
Except that many people made real-world decisions with their dead imaginary money. You thought the house you bought for a hundred grand was now worth a quarter-mil and so you took out a home-equity loan to buy a camper or to send your kid to private school. Your stuffed animal has died, but you’ve still got a real vet’s bill to pay.
And then, just to pile on, the government steps in to replace all that dead imaginary money with real (or realish) money. Having, in effect, colluded in the destruction of meaningful risk-evaluation, Washington decided it was obliged to act—not to prevent a Thirties-style “credit crunch” but to prop up an unsustainable form of mock credit that had led to the crisis in the first place. The state’s response to the downturn was to insist that we needed to re-inflate the credit bubble. If someone punctures your balloon, you can huff and puff into it all you want, but you’re never going to get it up in the air again. The Obama administration blew a trillion dollars of “stimulus” into the punctured credit balloon, and it flew out the gaping hole in the back, dropped into the Potomac, and floated out to sea.
“Borrowing,” continues Polonius, “dulls the edge of husbandry”—and that goes double for government, whose husbandry is dulled in the best of times. The state spends too much. So the individual spends too much. The state hires too many people on whom it lavishes too many benefits. So those foolish enough to remain in the private sector have to pay for the benefits of the public sector, and fund both their basics (housing) and their baubles (plasma TVs) through debt. At the start of the Reagan administration, America was the world’s largest creditor nation and its citizens had a 10 percent savings rate.105 Not today: By 2007, the average U.S. household had debts equivalent to 130 percent of income.106 Keynes’ view of the economy derived from the premise that a government treasury was not a family purse, and so the state, unlike the household, could borrow to “invest.” Now, the family purse has caught up: Governments and individuals alike borrow extravagantly—and to “consume” in the most transient sense rather than invest in anything meaningful.
The intellectual cover for America’s structural deformation was provided by “globalization.” Some of us have always been in favor of the “global economy.” If I want to buy a CD or a sofa, I don’t think it’s any business of the government whether it comes from Cleveland or Milan or Ougadougou.
As Adam Smith and John Stuart Mill will tell you, free trade has been indispensable to economic vitality from the Netherlands to Bengal. But you no longer hear much about “free trade.” That humdrum, prosaic supply-and-demand concept yielded to a glittering new coinage: “globalization,” less a commercial mechanism than an ideology.
But what does this mysterious metaphysical force called “globalization” actually boil down to? At the end of 2008, a few weeks after Barack Obama’s historic election, the media reported on America’s Christmas shopping spree. “Retail Sales Plummet,” read the headline in the
“Sales plunged across most categories on shrinking consumer spending.”107
