Watching the State of the Union address Tuesday night, I sometimes felt the urge to shout at the TV set. Although the President seems to want to do right by people, his repeated mentions of "responsible homeowners" told me that he does not understand borrowers' motivations, nor does he 'get' what underlies most late- or non-payment of debt. The reality is: If people do not make their mortgage payments, it is rarely because they are irresponsible.'
Obama is not alone in his lack of understanding. Both Robert Manning (2000) and David Graeber (2010) have noted that, in our society, to be in debt is to be judged morally wanting - even if that judgment has no basis in reality. Take a look at the facts - the main causes of consumer bankruptcy are:
- Shocks to income in the form of job loss, death of a wage earner, or divorce, and
- Shocks to expenses in the form of medical crises.
Either one of these catastrophes would be bad enough to bring a famly down, but they are prone to co-occur since in the US, loss of employment typically translates into loss of health insurance. That these 'drive' non-payment, particularly for homeowners, was documented in As We Forgive Our Debtors (Sullivan, Warren & Westbrook, 2000) and has been corroborated by numerous rigorously-conducted studies by economists (see citations in the embedded links).
Even a decade ago, the harbingers of today's debt crisis were lurking in plain view. On a systemic level, things are now much worse. Yet, there are many answers to be found. They lie neglected because so many people can't get beyond their counter-factual moral judgments. Ironically, it is the moral judgment that causes the harm, and it is they who would punish the suffering that carry the disease.
