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Chapter 2 Summary:

Erecting the Pillars of the U.S. Debtor Society

"That British [securities] trader who blew $900 million [in 1995]. The good news is he [charged] on Discover and will get $9 million back from the rebate program" ---comedian, Jay Leno

This chapter examines the macro-structural forces that are responsible for the dramatic transformation of America from a creditor to a debtor society. It begins by tracing the roots of the contemporary profusion of debt to the prosperity of the post-World War Two “Pax America.” That is, rapid economic growth (facilitated by the lack of international competition) and rising public tax revenues contributed to the sharp improvement in the U.S. standard of living. This was reinforced by government investment in education, housing, and transportation (often through subsidized loans) which spurred the expansion of suburbia and consumer demand. At the same time, these favorable economic trends contributed to the corporate-labor accord or Social Compact which ensured that the rising productivity of U.S. workers was rewarded with increasing wages. These conditions remained stable through the mid-1970s.

By the late 1970s, the foundation of the “Triangle of Debt” had been laid, featuring (1) public sector (government), (2) private business (corporate), and (3) private citizens (consumer). Over the next two decades of U.S. industrial restructuring, each “leg” experienced a tremendous increase in its financial obligations as the societal emphasis on saving/equity shifted to credit/debt. The different factors that shaped these convergent patterns of indebtedness are carefully explained. They include the changing realities of the world economy, programmatic and social investment shifts of the Reagan/ Bush Administrations, new economic calculus of the Casino Society (e.g.. debt financed mergers), end of the Social Compact (labor market reorganization), rising cost of living, and intensifying pressures on middle and working class families. The focus on the latter illuminates the growing importance of consumer credit in negotiating the treacherous social and economic currents of contemporary U.S. society.

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