Krugman: The Debt-Peonage Society

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Tue, 8 Mar 2005 22:48:45 -0800 (PST)

Krugman: The Debt-Peonage Society

 

 

http://www.nytimes.com/2005/03/08/opinion/08krugman.html

The Debt-Peonage Society

By PAUL KRUGMAN

 

Published: March 8, 2005

 

 

The Debt-Peonage Society

Paul Krugman

 

 

Today the Senate is expected to vote to limit debate on

a bill that toughens the existing bankruptcy law,

probably ensuring the bill's passage. A solid bloc of

Republican senators, assisted by some Democrats, has

already voted down a series of amendments that would

either have closed loopholes for the rich or provided

protection for some poor and middle-class families.

 

The bankruptcy bill was written by and for credit card

companies, and the industry's political muscle is the

reason it seems unstoppable. But the bill also fits

into the broader context of what Jacob Hacker, a

political scientist at Yale, calls " risk

privatization " : a steady erosion of the protection the

government provides against personal misfortune, even

as ordinary families face ever-growing economic

insecurity.

 

The bill would make it much harder for families in

distress to write off their debts and make a fresh

start. Instead, many debtors would find themselves on

an endless treadmill of payments.

 

The credit card companies say this is needed because

people have been abusing the bankruptcy law, borrowing

irresponsibly and walking away from debts. The facts

say otherwise.

 

A vast majority of personal bankruptcies in the United

States are the result of severe misfortune. One recent

study found that more than half of bankruptcies are

the result of medical emergencies. The rest are

overwhelmingly the result either of job loss or of

divorce.

 

To the extent that there is significant abuse of the

system, it's concentrated among the wealthy -

including corporate executives found guilty of

misleading investors - who can exploit loopholes in

the law to protect their wealth, no matter how

ill-gotten.

 

One increasingly popular loophole is the creation of

an " asset protection trust, " which is worth doing only

for the wealthy. Senator Charles Schumer introduced an

amendment that would have limited the exemption on

such trusts, but apparently it's O.K. to game the

system if you're rich: 54 Republicans and 2 Democrats

voted against the Schumer amendment.

 

Other amendments were aimed at protecting families and

individuals who have clearly been forced into

bankruptcy by events, or who would face extreme

hardship in repaying debts. Ted Kennedy introduced an

exemption for cases of medical bankruptcy. Russ

Feingold introduced an amendment protecting the homes

of the elderly. Dick Durbin asked for protection for

armed services members and veterans. All were

rejected.

 

None of this should come as a surprise: it's all part

of the pattern.

 

As Mr. Hacker and others have documented, over the

past three decades the lives of ordinary Americans

have become steadily less secure, and their chances of

plunging from the middle class into acute poverty ever

larger. Job stability has declined; spells of

unemployment, when they happen, last longer; fewer

workers receive health insurance from their employers;

fewer workers have guaranteed pensions.

 

Some of these changes are the result of a changing

economy. But the underlying economic trends have been

reinforced by an ideologically driven effort to strip

away the protections the government used to provide.

For example, long-term unemployment has become much

more common, but unemployment benefits expire sooner.

Health insurance coverage is declining, but new

initiatives like health savings accounts (introduced

in the 2003 Medicare bill), rather than discouraging

that trend, further undermine the incentives of

employers to provide coverage.

 

Above all, of course, at a time when ever-fewer

workers can count on pensions from their employers,

the current administration wants to phase out Social

Security.

 

The bankruptcy bill fits right into this picture. When

everything else goes wrong, Americans can still get a

measure of relief by filing for bankruptcy - and

rising insecurity means that they are forced to do

this more often than in the past. But Congress is now

poised to make bankruptcy law harsher, too.

 

Warren Buffett recently made headlines by saying

America is more likely to turn into a " sharecroppers'

society " than an " ownership society. " But I think the

right term is a " debt peonage " society - after the

system, prevalent in the post-Civil War South, in

which debtors were forced to work for their creditors.

The bankruptcy bill won't get us back to those bad old

days all by itself, but it's a significant step in

that direction.

 

And any senator who votes for the bill should be

ashamed.

 

 

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