The Debt-Peonage Society
by Paul Krugman
The New York Times (www.truthout.org,
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
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
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
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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