The Two-Income Trap - Elizabeth Warren [38]
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The Myth of the Immoral Debtor
There is a second myth about financial failure. This one is not about how families spend their money—in fact, it is not about dollars at all. This myth is about good and evil, ethics and righteousness. The Myth of the Immoral Debtor tells a story that begins in the past. In the good old days, goes the story, people paid their bills No Matter What. Not because they had more money, but because they had more honor. They paid their bills because it was the right thing to do; they would have died of shame rather than default. But today, the myth declares, the old morality is dead. We live in a time of easy virtue and decaying standards. To quote Republican Senator Orrin Hatch from Utah, large numbers of our fellow citizens “abuse the system” in order to “get around debts for which they are very capable of paying.”1
The myth doesn’t really require any proof, just a pugnacious assertion that our neighbors are cheating the system and the rest of us are paying for it. The Immoral Debtor Myth trades on an easy cynicism that passes for sophistication. Only chumps believe that everyone else is playing by the rules. People who are in the know understand that cheating is rampant, that millions of Americans are bankrupt or near-bankrupt because, according to Senator Hatch, “they run up huge bills and then expect society to pay for them.”2 When the creditors come calling, they stall, lie, and, sooner or later, declare bankruptcy so they can walk out on their debts.
Is there any truth to this claim? Have Americans gone from an age of honor and decency to a state of moral squalor? One problem with the Golden Age of Bill Paying is that no one can agree on when it actually occurred. Republican Congressman Henry Hyde recently complained, “Bankruptcy no longer carries with it the social stigma that it did twenty years ago. . . . Bankruptcy is becoming a first stop for some rather than a last resort.”3 Congressman Hyde wasn’t the first to make this claim. He put the decline in the early 1980s, but he joined a long line of those who complained about declining standards. In the 1930s, Thomas D. Thacher, then solicitor general of the United States, expressed the often-repeated claim that numerous industrial workers were “running up bills without intention or ability to pay, and then filing a petition in bankruptcy.”4 Mr. Thacher, in turn, was preceded by nineteenth-century arbiters of public morality with similar complaints, who themselves were preceded by eighteenth-century critics, led by the venerable preacher Cotton Mather, who, in 1716, used his pulpit to decry the early American colonists who could not pay their debts, “for which they are to be Indicted, as Not Having the Fear of God before their Eyes.”5 It seems that the Golden Age of Bill Paying was always in the past, and that previous generations always had higher standards and greater integrity.6 Indeed, if we listened to the public moralists, we would be left with the impression that America’s moral fortitude has been rapidly disintegrating for at least 300 years!
What about today? Have Americans become cunning financial manipulators, ready to walk out on their debts without a moment’s hesitation? Has the failure to repay or the decision to file for bankruptcy lost its sting? Once again, we turn to the numbers.
No Shame in Failure
The conviction that filing for bankruptcy no longer carries the stigma it once did is so widespread that it requires no proof. Whenever a commentator tries to verify the argument, the logic is usually circular. People would not file for bankruptcy if they felt stigmatized by it; therefore, if bankruptcies are up, stigma