June 15, 2008
Arnold Kling
He writes,
Obviously, some individuals borrow too much, and get caught in a spiral of high interest rate payments, bankruptcy, and insufficient assets as they age. Nevertheless, on the whole the growth of credit instruments available to consumers has been a positive development that helps finance investments in education and other human capital, and produces a more optimal consumption profile over the lifecycle.
It is fashionable to bemoan the decline of saving and the growth of consumer credit. The Nobel Laureate offers a more nuanced perspective. Read the whole thing.
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CATEGORIES: Family Economics (17)
Becker seems to base his argument on the advantages of a college education toward earning a higher salary. But he seems to forget econ 101 about what raises average salaries, as opposed to what raises individual salaries. If everyone in the nation had PhD degrees, then there would be no advantage to a college education. Would everyone's earnings be as high as those of PhD's today? No. Because average wages depend exclusively on the marginal productivity of labor. And what causes MPL to increase? Investments in new and better equipment, or capital accumulation. Capital accumulation is absolutely necessary for future increases in average wages. What hinders capital accumulation? Lower savings/greater consumption.
Becker knows all of this already. It's a shame he didn't put more thought into his article. He's looking at the short run benefits of consumer debt rather than the long run ill effects. But to paraphrase Mises, the only job of the economist is to force people to look at the long run; a short run perspective comes naturally.
Becker ignores the decline of training our young people get in handling financial affairs. They grow up in a situation where they are given a lot and seldom learn how to even balance a checking account, as well as being given a credit card early in their lives.
