NCPA - National Center for Policy Analysis

Growing Band of Economists See Debt As No Sin

January 25, 2002

Sages throughout the ages have counseled the benefits of thrift and the dangers of debt. Now some economists are challenging the thesis that Americans are not saving enough -- and advising us to spend more for the good of the economy.

They warn that as soon as debt stops increasing at its recent rapid pace, the brisk economic growth of the late 1990s will be impossible. According to University of Texas economist James K. Galbraith, "In some sense, what drives an economy is a willingness to extend credit and a willingness to take on debt."

  • From 1991 to 2001, household liabilities more than doubled -- from $3.9 trillion to $7.9 trillion, according to
  • The federal government says that Americans' savings rate has fallen from almost 12 percent in the early 1980s to close to zero now.
  • But the figure excludes gains in assets like land and stocks -- which have been plentiful in recent years.
  • Even those who advise consumers to spend more acknowledge that at some point debt can become unmanageable for a society -- but they can't peg where that limit lies.

So it might be said that Americans have the choice of living for the economy -- or for their own financial independence and peace of mind.

Source: David Leonhardt, "A Blasphemy Spreads: Debts Are O.K.," New York Times, January 19, 2002.


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