Election 2008: What’s At Stake?

Coming off of dual crises in the lending industry (student loans and mortgages), many Americans are starting to worry about our reliance on the loans that make our economy purr. As a nation, we have a pretty hefty debt: the U.S. government owes trillions of dollars to lenders here and abroad. Individual Americans are taking on more debt at a younger age, starting with student loans to fund the educations that are necessary to compete in the contemporary economy. Problem is, so much debt so young makes it hard for people to take out loans—and thus, buy homes and start businesses—as they grow older. As foreclosures and loan defaults increase, this debt problem promises to be a drag on our economy.

Christian E. Weller, a senior fellow at the Center for American Progress, blogs on Credit Slips, a great blog run by academics about credit and bankruptcy, that we are heading toward a “Great Deflation.” He argues that a period of flat real wages accompanied by precipitous increases in the cost of health care, housing, energy and transportation costs have forced Americans to borrow to cover their basic expenses. Americans are now shackled by their debt, and whether they default or struggle to pay it back, businesses will suffer because debt is bleeding their customer base.

Weller suggests that the government must reinstate a progressive tax system, stimulate trade and demand for American products abroad, and invest in universities and research institutions to boost innovation. Whatever the solution, the issue is certainly a challenge to presidential candidates, who must convince voters that the future is bright and they can dream of a more successful life for their children. Hillary Clinton and Barack Obama advocate a progressive tax system and regulation of the mortgage and lending industry. John McCain advocates low taxes and tax cuts targeted toward encouraging innovation. Yet without a concerted readjustment that brings earnings in line with the cost of living, ordinary Americans will continue to have monthly budget deficits.