As the New Year advances through snowstorms and catastrophic floods, the waters of debt continue to swirl around many advanced economies. The United States has a total debt of 14 trillion dollars — an unimaginable sum, though only a fraction of the $62 trillion that the scary IOUSA video says would be necessary to cover all that the US government has committed itself to spending. In Europe, housing bubbles are bursting one after the other, banks are crashing and governments going broke or scrabbling desperately to cut public spending.
The European Union, we know, will bail out its own as long as it can. China, or someone, will buy US Treasury bonds. But who will come to the rescue of Jack and Jane Smith and their children when they can no longer pay the mortgage? Welfare cheques will not save their home.
When the financial crisis struck in 2007, ordinary people knew what they had to do: spend less, reduce debt and, if possible, save. Around the world, that is what many have done. A feature in The Atlantic magazine, How the Recession Changed Us, shows that consumer spending in the US fell from $91 a day in October 2008 to $62 last October, while personal savings as a per cent of disposable income rose from 2.1 per cent three years ago to 5.7 per cent currently. People everywhere have fallen out of love with credit cards — last year alone the British chopped up 1.5 million of them.
In short, we have become more thrifty. The trend may turn out to be temporary , of course, and if the current belt-tightening is seen only as a way of making ends meet during a crisis we may eventually see a return to the mindless consumerism of pre-2007. If the recovery takes long enough, though, people may get used to being more frugal and decide they like it. The worldwide web is bristling with ideas that make it look achievable and even fun.
Probably no organisation has done more to promote thrift recently than the Institute for American Values. Three years ago, in partnership with the John Templeton Foundation and with the support of experts from a large numbers of organisations, the IAV issued a report calling for a revival of the American tradition of thrift. For a New Thrift surveyed the debt culture into which much of the nation was sinking and proposed several specific objectives for beating it. This week part of that plan is being realised as the first National Thrift Week in 45 years is observed in Philadelphia. Among those involved in the event is the mayor, a local bank and a credit union.
Philadelphia is the city where America’s “apostle of thrift”, Benjamin Franklin, lived much of his life and from where he inspired a debt-plagued 18th century colonial populace with his secular gospel of thrift: work hard, don’t waste, exercise care, give back. Not only America but much of the world had its first lessons in the thrifty way to success through Franklin’s famous maxims: “Eat to live, not live to eat”; “Hope of gains lessens pain”; “God helps those that help themselves”; “Early to bed, early to rise, makes a man healthy, wealthy and wise”.
For Franklin, as for others who have carried on the tradition, thrift embraces much more than a healthy bank balance; it is a virtue, an affair of character that helps build integrity, responsibility, stewardship of resources, and generosity to others. Even so, he was dismissed by some 19th century intellectuals as a mere “maxim-monger” and a crude utilitarian who advocated making more and more money for its own sake — a view which helped to produce the caricature of frugal people as dry and prim, if not actually Scrooge-like.
According to IAV scholar Barbara Dafoe Whitehead, this is far from the truth. In her essay, “Franklin’s Way to Wealth”, in the book Franklin’s Thrift: The Lost History of an American Virtue, she says:
Franklin’s thought and writings on ‘industry and frugality’ set forth a social philosophy of human flourishing and freedom rooted in social mobility, economic opportunity, and generosity to others. Indeed, Franklin’s ideas about economic independence remain as central to American identity as the ideas of political independence inscribed in the founding documents. If Jefferson wrote the Declaration of Independence and Madison crafted the Constitution, then Benjamin Franklin, it might truly be said, invented the American Dream.”
The word “thrift”, after all, comes from the positive and dynamic verb, “thrive”. But people do not thrive when they are enslaved — to debt or anything else. Living the high life on credit — or other people’s unwise investments — may look like “flourishing” but we have seen too many of these stories end in tears lately to believe that it is. Franklin’s insistence on economic independence is something we have to learn again, but there are a couple of vital aspects in Dafoe Whitehead’s account that should not be overlooked.
First, the household is the primary unit of society and marriage the fundamental economic partnership. But this is precisely this building block of freedom that is being eroded today for the “middling sort” of people for whom Franklin mainly wrote. As the National Marriage Project recently reported, it is middle Americans, about 58 per cent of the population, who are increasingly divorcing or failing to marry — and so becoming impoverished.
Second, economic independence is not just “freedom from” debt — which could lead to a selfish complacency and pitiless attitude to the “undeserving poor”. It is “freedom for” — public service (because one has the leisure time for it), philanthropy and productive investment. (Franklin helped many people in his lifetime, including members of his own family, and a fund he left in his will to provide funds for young, married tradesmen had helped some 250 of them by the mid-1820s.) It is people who save who can boost local industry and employment and reduce national dependence on foreign lenders. Ultimately they spend more and, probably, they spend more wisely.
Not all debt is bad, of course. People need credit to start up businesses, to buy homes for their families and for other essential big-ticket items. During much of last century societies organised to provide loans for these purposes at reasonable and even encouraging rates. Welfare state governments, savings banks, friendly societies and credit unions all helped middling-to-low income families into homes. These days the working poor and unemployed are borrowing at exorbitant rates from payday lenders and other loan sharks just to put bread on the table or keep their old cars on the road so they can get to work. Many play the lotteries or gaming machines in the hope of a windfall that will solve all their problems.
While such anti-thrift institutions operate in an ever-widening sphere of society, says the IAV’s report, pro-thrift institutions have “moved uptown”, abandoning those of modest means. Individual consumerism may be largely to blame for the debt crisis, says IAV, but institutions (including states that run lotteries) have also played a part in dividing America into an “investor class” and a “lottery class”. Now it is time for governments and others to encourage a much wider swath of society to invest, through workplaces mainly, in savings plans linked to the stock market.
Another important step it advocates is building new thrift institutions — primarily credit unions, which have served working people well in the past. In Philadelphia this week the People For People Charter School, in partnership with People For People Community Development Credit Union is offering limited-match savings accounts for their students. These broadly democratic institutions encourage people to save and also offer access to credit at affordable costs to people of moderate and modest means. Already there are new initiatives in this area and they could be helped by state governments.
There are many other ideas in the new thrift movement, most if not all of them applicable well beyond the United States. Behind all of them is the truth that the alternative to the virtue of thrift is debt slavery. That is not a legacy a decent society wants to pass onto coming generations and, as the IOUSA film and student revolts in Europe demonstrate, it is not one they will take lying down.
Carolyn Moynihan is deputy editor of MercatorNet.