AMERICA'S DEBT SAFETY‐NET
| Author | JOHNNA MONTGOMERIE |
| Published date | 01 December 2013 |
| Date | 01 December 2013 |
| DOI | http://doi.org/10.1111/j.1467-9299.2012.02094.x |
doi: 10.1111/j.1467-9299.2012.02094.x
AMERICA’S DEBT SAFETY-NET
JOHNNA MONTGOMERIE
This article evaluates the rapid escalation of American household debt in relation to the changing
dynamics of liberal welfare capitalism. Starting with the outcome of rising household debt levels
during the credit and asset bubble of 2001–7 it argues that the failure of asset-based welfare and
the inability of households to move beyond their historical dependence on earned income made
indebtedness essential to household social participation and protection. It examines the unique
relationship of young adults (households headed by persons under age 35) and senior citizens
(households headed by persons over age 65) to the liberal welfare regime, in particular the ways in
which these relationships were shaped by the 2001–7 credit and asset bubble. By using a framework
in which debt is analyzed as a claim against income, alongside other costs of social participation
and daily living, we see the impact of the credit and asset boom on both young adults and senior
citizens: growing indebtedness and financial insecurity.
INTRODUCTION
Successive debates about the form, content, and purpose of American welfare state
reform have outlined the way in which different political traditions and institutions
shape policy measures. Some emphasize structural pressures, such as globalization or
the ageing population (Schwartz 2007), as key factors creating a permanent austerity that
challenges the survival of the post-war welfare state (Pierson 2007). Others emphasize
ideational change brought about by neoliberalism or managerialism as instigators of
welfare state reform (Clarke and Newman 1997; Squires 1990). Esping-Andersen’s (1990)
initial outline of the American liberal welfare state regime highlights inter-linkages
between employment policy, labour markets, and the welfare system. However, long-
term cumulative changes in the American labour market regime and successive efforts
at welfare reform have so transformed the American liberal welfare regime that it barely
resembles Esping-Andersen’s initial typology. The welfare regime to emerge over the past
20 years has been described as privatized Keynesianism because it creates economic stability,
effective demand, and welfare provision through housing and capital markets rather than
through employment and production (Crouch 2009); or ‘finance-led growth regime’
because easy credit offered American households asset-based wealth gains in the form of
housing and portfolio investments to compensate for income loss due to stagnating wage
growth (Boyer 2000). It has been widely acknowledged that rising household debt was an
integral part of these transformations (Langley 2008; Montgomerie 2009; Seabrooke 2009).
Not just in the United States, the ‘Anglo-liberal’ growth model could be generalized across
Anglophone countries, like the United Kingdom and Ireland, that increasingly relied on
consumer-led growth financed with private debt, but also supported by high levels of
public expenditure (Hay 2011).
This article evaluates the rapid escalation of American household debt in relation to
the changing dynamics of liberal welfare capitalism. Starting with the outcome of rising
household indebtedness during the credit and asset bubble of 2001–7, this trend is assessed
in relation to transformations within the welfare regime. Although the credit and asset
Johnna Montgomerie is at ESRC Centre for Research on Socio-Cultural Change (CRESC), University of Manchester,
UK.
Public Administration Vol. 91, No. 4, 2013 (871–888)
©2013 John Wiley & Sons Ltd.
872JOHNNA MONTGOMERIE
bubble occurred ‘outside’ the logic and processes of welfare reform, it was nonetheless
linked through households’ daily use of debt to cope with these changes. Household debt
is typically evaluated with reference to changes in financial markets, either innovations
or changing regulations. This leaves the obvious gap of understanding household debt
with reference to the transformations the household sector experienced over the past two
decades. Rising indebtedness may have been an unplanned outcome of the welfare regime
changes, but this indebtedness is as much about government household provisioning and
labour market practice as about the transformations in financial markets.
To provide an alternative account of the US liberal welfare regime during the 2001–7
boom years, this article puts debt-led consumption at its core, conceptualizing how the
failure of asset-based welfare and the inability of households to move beyond their
historical dependence on earned income made indebtedness essential to household social
participation and protection.
Here we look at two specific subpopulations: young adults (households headed by
persons under age 35) and senior citizens (households headed by persons over age
65). These two groups have a unique relationship to the liberal welfare regime, which
aims to support economic stability by smoothing out fluctuations in household income
and/or consumption, particularly for the most financially insecure. Through direct income
transfers to the retired or unemployed and the funding of higher education and skills
training, liberal welfare capitalism serves as a vital buttress to economic growth and
stability. Under this welfare regime, young adults and senior citizens are a residual social
stratum usually deemed politically worthy of state support. Their links to specific forms of
state support such as pensions, healthcare, and education provide a basis for considering
the outcomes of changes in the liberal welfare regime.
Attempts to evaluate the intergenerational dynamics of transformation in the liberal
welfare regime are most often framed in terms of conflict between competing birth
cohorts. Usually this arises from an emphasis on changing demographic trends, namely
the relatively numerous Baby Boomers compared to the decreasing birth rates of recent
decades, and how this interplays with economic assumptions about the income and
wealth life-cycle. Whether it is private pension funds, social security, public financing of
government services, or the recent housing boom, intergenerational dynamics are seen in
terms of the winners and losers (Hamil-Luker 2001; Kohli 2002; Mortensen and Seabrooke
2008). This is especially so when we consider debates about the future of welfare services:
‘the young’ must pay today unsure if the same services will be available to them in the
future, while ‘the old’ benefit today without considering the fiscal implications. Alongside
the intergenerational conflicts over welfare provisions, this article explores important
similarities between age groups in terms of the impact of the credit and asset boom,
namely that many young adults and senior citizens experienced growing indebtedness
and financial insecurity.
This is accomplished by illustrating these households’ experience of the last two decades
through descriptive statistics. Since it is impossible to mediate between ‘individual choice’
and ‘structural logic’ in such a short article, a more modest effort is made to pragmatically
assess the impact of the 2001–7 credit and asset bubble on the average young adult and
senior citizen household. As these households shape the form and content of the boom,
bust, and faltering recovery, how they cope with the profound transformations in the US
economy is relevant. The explicit focus is the severity of indebtedness resulting from the
bubble and the ensuing financial insecurity. The timing of the credit and asset bubble
suggests that ‘stage of life’ is as important as the political and economic times one lives in.
Public Administration Vol. 91, No. 4, 2013 (871–888)
©2013 John Wiley & Sons Ltd.
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