I stumbled across an interesting article that you guys should read. The logic for this article is composed within the byline: “For many poor Americans, credit cards can still be a better deal than payday loans and pawnshops.” The author, Virginia Postrel, is making a case FOR consumer debt.

There are three main points to her article:

1.) Debt is cyclical and resurges every so often because it’s an evergreen story for the press.

2.) Consumer credit is convenient…”the expansion of consumer credit is one of the great economic achievements of the past century.”

3.) Credit card fees have come done.

I’m not really inclined to agree with Ms. Postrel’s arguments and the majority of her anecdotes seem irrelevant to the points at hand. First of all, if the baseline for comparison on consumer debt is predatory loan shops, then we’ve obviously got ourselves a crisis. It seems illogical to me to use that as a comparison when speaking for consumer debt. So, I thought it would be interesting to discuss the rest of her points here.

1.) Debt is cyclical

Ms. Postrel stated that consumers “predictably” rack up debt, and as a result, there is a tizzy in the media about crises and hardship. She gives the example of a newspaper reporter calling up a law professor who studies bankruptcy and consumer credit. In the conversation, the reporter asks the professor how consumers would pay back the debt they had racked up from Christmas shopping, to which the professor asked how they had paid it back last year, and the year before that, and the year before that.

In the course of this example, Postrel aims to demonstrate that debt isn’t anything new. In fact, in journalism, it is often referred to as an evergreen topic – one that is always in season – because it stirs quite a bit of controversy. We all know that controversy and sensationalism sell newspapers and magazines, so the topic of debt – which has people wringing their hands in fear and anxiety – would be a perfect topic to keep on the backburner.

While it’s true that consumer debt is about as American as apple pie, that doesn’t necessarily make it a good thing. One of the things I noticed about Postrel’s argument is that she is only talking about credit card debt within her examples. Consumer debt is a much bigger animal than just credit card debt, ask any student with loans saddled to their diplomas. Beyond that there’s mortgages and home equity loans, healthcare, and many other things that are factored into why consumers are in debt up to their eyeballs. We can’t leave these out of the equation when we say there’s not a credit crisis because they’re all integral to the problem at hand.

American’s are way too overextended and are having trouble making ends meet, plunging property values are practically robbing people of their net worth, and the savings rate has been in the negative for the last decade. Clearly there’s reason to be concerned.

2.) Consumer credit is convenient

I’m not disputing this point, it is very convenient and oftentimes rewarding. However, in an article favoring consumer debt, I’d expect there to be reasons actually FOR debt. Postrel’s examples seem to be more about charge cards as opposed to actual revolving lines of credit. Think American Express. There’s not really a loan per se with this card, you spend and pay it off at the end of the month. It’s convenient and often rewarding, as I mentioned. However, I don’t think this particular point in Postrel’s article relates to anything for debt. These kinds of cards are typically paid at the end of the month so there is no debt. I fail to see how this is relevant to consumer debt being a good thing.

3.) Credit card fees have come down

So they have, but the story she uses to explain this is irrelevant to the point she was originally trying to make. Credit has become cheaper, easier to access, and more readily available to consumers from all economic backgrounds; however that tells us little of the overextended consumer. It’s more of a reflection on the reality of the regulatory environment.

But, there’s a catch-22 here. While it’s true that credit is cheaper and easier to access, it’s not always the most cost effective. Credit card companies are notorious for their hidden fees and agendas. We’ve discussed several scenarios here that resulted in consumers being charged outlandish fees. But, there’s no mention of these hidden fees that very often outweigh the benefits of credit in Postrel’s article.

Postrel drew the conclusion that we’ve always had debt and we’ve always made a big deal out of it. This time is no different, it’s just “sexier” because we’re in an economic downturn. Well, even in the fable, Peter’s cry of ‘wolf’ was true once. I think it’s important that we realize we ARE in a credit crisis and take active steps to improve our situation before things get worse.

Realistically, I’m not sure how Postrel doesn’t see the crisis when we’ve had something like 12 banks fall and the government spending $750 billion to bailout the financial industry. Not to mention the fact that we’ve got foreign governments pouring money into failing businesses to keep them afloat. If that’s not a crisis, then I don’t know what is.

So, what are your thoughts on the matter? Do you agree with Postrel and believe everything is fine, we’re just making a big deal out of old habits? Or do you think that Postrel is sugarcoating the truth and trying a different tactic in her journalism?

Related posts:

1. Life or Debt: The Psychology of Consumer Debt
2. Revolving consumer debt to hit $1,000,000,000,000
3. Binding Arbitration: A Rewrite of Consumer Rights?
4. Consumer Reports’ Credit Cards Worth Holding
5. An Arbitrator is Dismissed from the NAF for finding in favor of a Consumer