Cause of Credit Card Debt: Stagnant Wages

RICHARD WOLFF
Wolff is author of the new book Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It.

He said today: "Since the 1970s, U.S. employers stopped paying
their workers rising real wages even as worker productivity kept
rising. Over the previous century, U.S. workers' real wages had risen
together with their productivity. ...

"Workers had two choices: give up the [American] Dream of sending
kids to college, buying good health care, enjoying retirement, living
decently, or else borrow to pay for those things. Desperate to live the
dream, to be 'successful,' to do what every advertisement advised, U.S.
workers went on a 30-year borrowing binge. First they borrowed with the
collateral of their homes (if they owned homes). When that was not
enough, the credit card industry arose to make unsecured (no
collateral) consumer loans. By 2006, U.S. workers' families had
multiple members working multiple jobs and staggering under mortgage,
auto, and credit card loans that their stagnant incomes could no longer
sustain. What collapsed in 2008 was an American economy built in good
part on a house of credit cards because employers stopped paying rising
wages for rising worker productivity.

"First, credit card companies took advantage of stagnant wages to
push credit cards way beyond what working families could sustain.
Today, credit card companies are cutting back consumer credit and
raising fees to save themselves from financial ruin. The economic
crisis whose recovery requires more spending on goods and services
(that provide jobs) is thus worsened by credit card companies whose
actions reduce spending. Meanwhile, real wages are not rising to once
again relieve workers of the need to borrow. So unemployment worsens,
foreclosures grow, and the underlying causes of the economic crisis go
unattended."

Wolff is professor emeritus of economics at the University of
Massachusetts, Amherst. He is currently a visiting professor in the
Graduate Program for International Affairs at the New School University
in New York City.