The Philosophy of Debt

An interesting article in the Times today about Americans' love-hate relationship with debt.
Leonhardt argues:
"When somebody comes up with an innovation, be it consumer loans, credit cards or creative mortgages, it inevitably leads to an explosion of borrowing that includes a good amount of excess and downright abuse. After the abuse is cleaned up, though, most families end up better off." The mortgage crisis, he says, will eventually bring more of the same.

As a journalist, I'm obviously part of the century-old media tendency he describes, to "focus on the economic risks" of new forms of debt and higher debt. I see my role as being a necessary corrective to the prevailing mentality, which is no-big-deal, borrow now, pay later.

I agree that the debt liberalization-and-regulation thing is a cycle, but I'm not so sure about Leonhardts' argument that extravagantly easy money has improved Americans' lives. He says it would be much harder to buy a house or pay for college without low-interest loans. But many (including conservatives) argue houses and tuition wouldn't be so expensive without those loans.

Leonhardt also argues that credit cards have become a kind of safety net. "Just a generation ago, a temporary setback, like illness, divorce or job loss, was much more likely to force a family to take drastic measures than it is today. That’s in large measure because of debt, which allows families to smooth out the rough edges of their financial lives."
Progressive analysts also see credit cards as a safety net, but a pretty crappy one. As in the Demos report, The Plastic Safety Net. A generation ago, a family's "drastic measures" may have included actually spending less money, or Mom going to work. Now, those same setbacks--illness, divorce, job loss--are far more likely to lead to credit card debt, followed by bankruptcy. Is this progress?