The Credit Crunch and US Politics

It's pretty obvious that the incumbent party is always going to have a harder time being reelected if it's running during a recession. But a post by John Quiggin today implies that the thing that the Republicans should be most scared of is not a recession so much as a credit crunch. He points out that mortgages in the US are largely non-recourse, and then continues:

The relatively generous treatment of debtors in the US seems to illustrate, at the national level, a pattern found among US states. Pro-debtor institutions are, in political terms, a substitute for redistributive taxation.
Where credit is easy, and the consequences of non-repayment are not too drastic, households can maintain consumption for long periods even when their income is falling. So, the political resistance to pro-rich policies is much less sharp. The massive increase in income inequality in the US since 1970 has coincided with an equally massive boom in consumer credit.
The obvious question is whether this political equilibrium can survive.

So far, the consumer-credit boom seems to be the last to crunch. Credit-card balances are rising, not falling, as Americans fund their consumption with plastic rather than home equity. But as those credit cards max out over the course of the year, there might be some very unhappy borrowers entering polling stations on November 4.

Add Your Comment

Report Abuse

Archive

Categories

Links