In recent months, the Biden administration, in concert with many mainstream political commentators, has insisted that the American economy is doing better than ever, evidenced by low unemployment figures and a slowing inflation rate. Not only do these data suggest the strength of the US economy, the argument goes, but they also provide clear evidence against the claim that America is on the cusp of economic recession, as many economists predicted throughout 2023 as the Federal Reserve raised interest rates in its purported attempt to bring inflation to heel.
Admonishing the naysayers for being unwilling to admit that their predictions were wrong, in addition to many Americans who remain sour on the economy, Biden et al. say that American capitalism has defied all odds and that a so-called “soft-landing”—a euphemism for the Federal Reserve’s ability to “cool” the economy without inciting unemployment—is within reach. So why all the negative sentiments?
While the Biden administration and its surrogates are championing the strength of the US economy, a more detailed examination reveals a much different story: It exposes a nation suffering from very real structural problems concerning its economy, which, if not confronted, threatens to upend the political-economic order in ways that could have profound consequences both in the immediate term and for generations to come.
Though the US capitalist economy is exhibiting several disconcerting signs, I want to emphasize one data point that those in and around the Biden administration fail to underscore: rising consumer debt and its straitjacketing of the American economy.
According to a recent Federal Reserve Bank of New York report, household debt increased by $212 billion (1.2%) in the fourth quarter of 2023 alone, with credit card and auto loan transitions into delinquency eclipsing pre-pandemic levels. Notably, this financial stress has been hitting younger and lower-income households—i.e., those with less savings—the hardest. No doubt a residual result of the worst inflation in nearly 40 years, on top of wage growth that had been, until recent years, nonexistent, many American households are struggling to make ends meet. They are having to resort to debt to plug in the gap.
While some observers dismiss concerns about mounting debt as much ado about nothing, as economist Michael Hudson has reminded us, this amount of debt can and often is pernicious, leading to what Irving Fisher described as “debt deflation”—a situation in which the economy stagnates or even shrinks because a growing portion of Americans’ income is going towards servicing their debts, rather than buying the goods and services that they produce. So long as this debt grows, Hudson warns, economic depression will remain a legitimate possibility.
There is a potential solution, however, and one with historical precedent: a debt write-down. As Hudson explains, not only is this well within the government’s capacity, but doing so would also leave consumers with far more of their income to spend on actual commodities, with benefits to the economy as a whole.
A debt write-down, if proposed, would undoubtedly be dismissed as “unrealistic” or “unfair” (neither of which are actual arguments). Moreover, such a policy’s constitutionality would almost certainly be questioned by legal operatives, as was the case with student loan debt cancellation. Such charges, however, amount to an unwillingness to face what is ultimately a political rather than a legal question: Is America willing to allow debt to put a stranglehold on its economy, harming the least well-off among us while also exacerbating inequality (yet another drag on economic growth)? Or will we continue to pretend this isn’t happening, applauding the performance of a “strong” economy that is anything but?
There is no guarantee that a debt write-down—or any other policy for that matter—would put the US on a track towards greater economic prosperity. But before getting to the policy question, we must first acknowledge that a problem exists. For as James Baldwin once remarked, “Not everything that is faced can be changed, but nothing can be changed until it is faced.”
If we are serious about creating a society in which everyone can prosper, we must face what has become an insurmountable debt burden, threatening to bring down American families and the entire economy with it.
Jared Clemons
Jared ClemonsJared received his Ph.D. in political science from Duke University, where he studied race, political economy, and political behavior. His research evaluates the relationship between macroeconomic and antiracist policy. Jared is a native of Louisiana and a proud alumnus of Louisiana State University, where he received his BA in political science.
