"SALT LAKE CITY – In 1757, Benjamin Franklin wrote, ‘Better to go to bed without supper, than wake up in debt.’ One of his modern-day namesakes hasn’t heeded the admonition. Benjamin Franklin Baggett of Salt Lake City got his first credit card on his honeymoon in 1990 and promptly maxed out his $300 credit line. Although Mr. Baggett had grown up on tales of Franklin, he wanted to buy himself and his wife some new clothing and he hadn’t saved enough to buy it outright on his $11-an-hour concierge job at a Doubletree Hotel.

"The charges were the first of many for Mr. Baggett, now 38 years old. In 1995 he moved into a house in the Harvard-Yale section of Salt Lake, a tree-lined neighborhood near the University of Utah that is home to many doctors, lawyers and professors. Mr. Baggett used credit cards to furnish the home with the kind of carpets and furniture his neighbors could afford.

"‘I felt insecure; I was an hourly paid worker in this fancy neighborhood,’ says Mr. Baggett. He was making $13 an hour for a time doing back-office work at a local bank while supporting four children.

"Twice he used a home-equity loan to pay off his credit-card debts, and twice he ran up steep credit-card bills again. When his debts reached $30,000, he filed for bankruptcy in 2003. ‘We came to rely on credit as part of our income, though it wasn’t part of our income.’ He now works at a foreign exchange broker, and has sold his house and divorced.

"More and more Americans are turning to debt to pay for lifestyles their current incomes can’t support. They are determined to live better than their parents, seduced by TV shows which take upper-class life for granted, and bombarded with advertisements for expensive automobiles and big-screen TVs. Financial firms have turned credit for the masses into a huge business, aided by better technology for analyzing credit risks.

"To some, the expansion of credit is a milestone of democracy, giving middle-class and lower-income people financial flexibility that only the rich used to enjoy. Others see the borrowing binge as a way for average households to make up for sluggish growth in income over the past several decades. Since 1990, income for the median American household has risen only 11% after adjusting for inflation, while median household spending has jumped at 30%, according to an analysis by Economy.com. Median household debt outstanding leaped by 80%.

"Utah vividly illustrates the changes credit has wrought in the US. Last year, 28% of Utah households filed for bankruptcy, twice the national average, and nearly triple Utah’s rate a decade earlier, according to Economy.com, a West Chester, PA, consulting firm. Utahns get married early and have the largest families in the nation on average. That makes for a lot of young parents with modest income looking for big homes and cars.

"In a conservative, largely Mormon state that favoured George Bush over John Kerry, 72% to 26%, the surge in bankruptcy has led to soul-searching. In a speech to a conference of Mormon officials, the church’s second-ranking leader said he was ‘appalled’ at advertising for home-equity loans which ‘is designed to tempt us to borrow more to have more.’ He repeated words of a Mormon elder during the Depression: ‘Interest never sleeps, nor sickens, nor dies. Once you’re in debt, interest is your companion every minute of the day or night.’"

Economists Fabrizio Perri of New York University and Dirk Krueger of Goethe University in Frankfurt, Germany, trace the credit surge to the widening income gap between the rich and the rest of US society. The gap between the incomes of those at the top and the bottom widened substantially between 1970 and 2000, but the gap in consumption widened much less as moderate-income Americans turned increasingly to debt. Cornell University economist Robert Frank sees house sizes, which have grown 30% since 1980, as an indication that middle-income Americans are battling to keep pace with the wealthy homeowners who build king-size McMansions."

Let us give the excellent WSJ reporters a rest, while we reflect on the cork-screwed sociology resulting from the breakdown of the cultural walls that used to keep the rich and poor segregated in their class ambitions. It has given rise to the illusion of economic advancement when the reality is actually moving in the opposite direction. There is scarcely more economic democracy around today than is needed to serve the technological and marketing needs of those in the saddle.

Despite the dicta of old sages, many economists – led by Federal Reserve Chairman Alan Greenspan – see the expansion of credit to lower-income families as a sign of progress. Some speak of the "democratization" of credit. In an April speech, Mr. Greenspan said that in colonial times through the late 19th century, only the affluent had access to credit and rates were high.

In the early 20th century gasoline companies and retail stores began issuing credit cards, but cards didn’t spread widely until the late 1960s when banks piled into the business. Those who celebrate credit’s new reach, such as University of Chicago economist Erik Hurst, talk about income "smoothing" – the idea that debt enables people to borrow from their future earnings so much is essential to keep the economy going.

This, of course, assumes a knowledge of the future that is simply not there. But the salient point of all this is that the financeers who have come to determine society’s future as never before, lean heavily on that supposed knowledge of the future. In fact, however, through derivatives they trade at a supposedly sure profit, those in command of the future of our society are conforming to the identical patterns that they have imposed on the mass of consumers. Without that there would not even be that temporary thrill of possessing the sun, the moon and all the stars that they cornered with the fine derivatives they were able to load up with at their bank.

-- from Economic Reform, July 2005