Moral Failings

I sent the following letter to the editor of the NYT today in response to this Op-Ed by David Brooks:

David Brooks, like many Americans, sees the explosion of debt over the last 30 years as a moral issue. This is apparently one instance where it is considered acceptable to blame the victim rather than the perpetrator.

Public policy is the source of our debt addiction. The tax code explicitly encourages debt accumulation. Corporate interest payments and mortgage interest are deductible while corporate dividends are taxed once as profit and later as income to the recipient. Monetary policy is distorted by the dual mandate to maintain economic growth as well as minimize inflation, at times mutually exclusive goals. The Federal Reserve since the elevation of Alan Greenspan to the Chairmanship in 1987 has consistently pushed the price of credit below natural levels to induce economic growth. When offered a chance to borrow ever devaluing dollars at artificially low interest rates, Americans responded as expected.

It is not the public that has lost its moral bearings. Americans are acting rationally and responding to the economic incentives provided by policymakers. No amount of cajoling will convince Americans to reduce their debt unless policies which encourage debt are changed. Returning our country to its roots of thrift, savings and investment will only be accomplished by changes in policy. As Mr. Brooks says, “There are dozens of things that could be done”. Blaming average Americans for our leaders’ moral failings is not among them.