Everybody knows that household debt in America has increased dramatically over the past few decades. But why? One possibility is that we've all been borrowing recklessly and living wildly beyond our means. But there are other possibilities too. Your debt-to-income ratio will go up if (a) your debt increases or (b) your income declines, and that can happen in several ways:


  • If you borrow more, your debt burden goes up.
  • If interest rates go up, your debt burden goes up even if you're borrowing the same amount as before.
  • If your income goes down (or grows more slowly than it used to, preventing you from paying down your debt at previous rates), your debt-to-income ratio increases.
  • If inflation falls, your debt level doesn't erode as quickly and your debt-to-income ratio may increase.

So which is it? Josh Mason and Arjun Jayadev recently decided to take the standard formula for decomposing public-sector debt changes and apply it to household debt over the past century or so. What they discovered was that although households did increase their borrowing during the housing bubble era (2000-06), that hasn't been a general trend over the past few decades. It's the other stuff that's changed:

If interest rates, growth and inflation over 1981-2011 had remained at their average levels of the previous 30 years, then the exact same spending decisions by households would have resulted in a debt-to-income ratio in 2010 below that of 1980, as shown in Figure 2. The 1980s, in particular, were a kind of slow-motion debt-deflation, or debt-disinflation; the entire growth in debt relative to earlier periods (17 percent of household income, compared with just 3 percent in the 1970s) is due to the slower growth in nominal income as a result of falling inflation.

....Neither the 1980s nor the 1990s saw an increase in new household borrowing — on the contrary, the household sector in the aggregate showed a primary surplus in these decades, in contrast with the primary deficits of the postwar decades. So both the conservative theory explaining increased household borrowing in terms of shorter time horizons and a general lack of self-control, and the liberal theory explaining it in terms of efforts by those further down the income ladder to maintain consumption standards in the face of a falling share of income, need some rethinking.

In some sense, you can say that people got accustomed to a certain level of borrowing in the immediate postwar era and then kept it up in the Reagan-Volcker-Greenspan era. Unfortunately, they didn't realize that the world had changed. Or, more accurately, they didn't realize how much it had changed. In particular, they didn't realize that growth was going to be permanently slower, inflation was going to be permanently lower, and wage growth was going to slide inexorably toward zero. So even though household borrowing went down over time, it didn't go down nearly enough. The chart below shows how much the debt-to-income ratio has increased in real life (black line) vs. how much it would have increased with the same level of borrowing but under the financial conditions of the postwar era (red line):

Based on this, Mason and Jayadev conclude that hectoring households about their borrowing habits isn't going to have much effect:

Going forward, it seems unlikely that households can sustain large enough primary deficits to reduce or even stabilize leverage....As a practical matter, it seems clear that, just as the rise in leverage was not the result of more borrowing, any reduction in leverage will not come about through less borrowing. To substantially reduce household debt will require some combination of financial repression to hold interest rates below growth rates for an extended period, and larger-scale and more systematic debt write-downs.

At a guess, more systematic write-downs are not in the cards. Deleveraging is thus going to be a very slow, very painful slog that will depress economic growth even below the sluggish rates we've gotten used to over the past 30 years. Welcome to the future.

I was wondering which conservative would be the first to try to squeeze some political juice out of President Obama's apology for the Koran burning in Afghanistan, and I guess I should have known. Sarah Palin, of course. Actually, I don't know if she's the first. But she's the first I've seen, and The Corner is still quiet about the whole thing. So here she is, along with a smattering of the comments from her fans. Enjoy.

Suzy Khimm reports on a fascinating new bit of research about the effect of language on people's tendency to save for the future:

Kevin Chen examined two groups of languages in a new working paper: languages that use words like “shall” or “will” to indicate the future, and languages that frequently rely on context rather than a separate verb tense for the future. Speakers of the first set of languages, like Greek, Italian, and English, tend to see the present and future as more disconnected. By contrast, languages that don’t grammatically distinguish between present and future events, like German, Finnish and Mandarin, “lead their speakers to take more future-oriented actions.”

Chen points to a long body of research showing that grammar can affect cognition and ultimately behavior, and discovers that speakers of German and other weak future-time reference languages are inclined to behave as though the future is an extension of the present: They’re 30 percent more likely to save in any given year, have more retirement savings, and are better at taking care of their long-term health.

Is it science or is it bullshit? Good question. At first, when I looked through the paper, I came across a chart (on page 12) that struck me as extremely weak. The line-fitting was mostly based on a tiny number of bilingual countries, and while this is a good attempt to tease out effects that don't depend on nationality, it's still a tiny number of countries with extremely wide variation around the trendline.

But then, on page 16, there's a more compelling chart. It's strictly for OECD countries, so you're basically comparing a bunch of rich economies to each other, and visually at least, it's fairly convincing. The cluster of countries on the right with low savings rates is a sea of red, indicating that they all speak languages that have a strong "future-time reference" structure. On the left, the vast majority of high-savings countries have weak FTR structures.

Fascinating! But so far, only suggestive. As Chen says: "One important issue in interpreting these results is the possibility that language is not causing but rather reflecting deeper differences that drive savings behavior." However, he believes the evidence points in the direction of language having an effect that's independent of culture: "While both language and cultural values appear to drive savings behavior, these measured effects do not appear to interact with each other in a way you would expect if they were both markers of some common causal factor."

We already know that you are what you eat. Maybe you're also what you speak. Now you have yet another excuse for why your high credit card bills aren't really your fault.

BONUS TIDBIT: I was initially surprised that Luxembourg and France were coded differently. Don't they speak French in Luxembourg? Yes they do, but it turns out the main language is actually Luxembourgish. I had no idea. If some presidential candidate had mentioned that, I would have thought he was an idiot, the kind of person who thinks they speak Argentinian in Argentina. Live and learn.

If it weren't for the fact that I find him so creepy, I'd almost feel sorry for Rick Santorum over the abuse he's taking for his explanation last night of his vote in favor of No Child Left Behind:

I have to admit, I voted for that. It was against the principles I believed in, but, you know, when you're part of the team, sometimes you take one for the team, for the leader, and I made a mistake. You know, politics is a team sport, folks. And sometimes you've got to rally together and do something.

I guess this sort of counts as a Kinsley gaffe: a candidate accidentally telling the truth. But in a way it goes beyond that. Santorum wasn't just telling the truth, he was repeating a banality. A little artlessly, sure, but basically still just a truism of politics. Of course members of Congress vote for things that are priorities for a president of their own party. That's how politics works. If any one of the guys on the stage last night becomes president, they'll be counting on that. Party solidarity is practically a religion in the GOP these days.

So that's all bad enough. But then to hear Mitt Romney — Multiple Choice Mitt himself! — snark that "I don't know if I have ever seen a politician explain, in so many ways, why he voted against his principles" just has to be galling as hell. Somehow Romney keeps wriggling away from the plain fact that Romneycare is nearly identical to Obamacare, something that really ought to be a death sentence, but following the lead of his president on a single issue a decade ago is all set to become Santorum's undoing.

If it was anyone else, I really would feel sorry for him. But Santorum is so sanctimonious about being the only GOP candidate who's an honest-to-God principled conservative that I can't really work up anything but crocodile tears over this. He's just getting his due.

I see that President Obama is back on his apology tour of the world:

President Obama apologized on Thursday for the burning of Korans at the largest American base in Afghanistan earlier this week as furious protests raged for a third day and a man wearing Afghan Army uniform turned his weapon on coalition soldiers, killing two of them.

“I wish to express my deep regret for the reported incident,” Mr. Obama said in a letter to President Hamid Karzai. “I extend to you and the Afghan people my sincere apologies....The error was inadvertent. I assure you that we will take the appropriate steps to avoid any recurrence, to include holding accountable those responsible.”

So has Mitt Romney blasted Obama for this today? I promise that I haven't looked yet. Has Newt Gingrich declared that Obama, as usual, is treating our enemies timorously and making America less safe? Has Rick Santorum suggested that Obama's apology for burning Korans is all part of his disdain for Christianity? Or are they taking a different tack and claiming that this whole incident shows that Obama is unfit to lead the military?

I sure wish this had happened yesterday so John King could have asked about it during the debate. Then again, maybe I don't.

There are lots of cases in which two or more people invent the same thing at pretty much the same time. However, by a quirk of law, if you happen to file a patent claim even a day before anyone else, it's game over. The patent is yours.1 Alex Tabarrok, riffing off an example in which Kelly and Pat invent something independently, thinks this is crazy:

Independent invention should be a defense in a patent infringement lawsuit. An independent invention defense would allow Kelly to exclude imitators but would prevent Kelly from excluding an independent inventor such as Pat.

Inventors should not have to pay to use their own ideas! An independent invention defense is not only just, it also has good economic properties. An independent invention would create more competition. On the one hand, this does reduce the “pot of gold” incentive to create new ideas, the winner of a patent race might have to sell as a duopolist rather than a monopolist. In this case, however, there are several reasons why we wouldn’t expect the number of ideas to fall and innovation could even rise.

Several pragmatic reasons follow, but allow me to make a different argument. Patents are supposed to be issued for genuinely innovative inventions, and simultaneous discovery is a pretty practical way of deciding whether something really is innovative. If Alice patents, say, a set of finger gestures for use on touchscreen computer tablets, and for the next five years no one independently submits a similar patent, that's a pretty good indication that Alice genuinely came up with a creative, innovative idea that she deserves to reap some rewards from. However, if Bob and Carol independently submit similar patents within a few months, that's a pretty good indication that the idea was "in the air." It's not something that's really all that innovative, it's just that no one gave it a lot of thought until cheap touchscreens became commercially available. Once they did, it became obvious that consumers would need a lexicon of finger gestures to control them and so a bunch of people started creating them.

We can argue about the details. How similar do the patents need to be? How much time has to elapse before you can no longer claim independent discovery? Etc. But the basic principle is simple. Alex is right that there are practical reasons that a system like this would spur innovation, which is supposed to be the point of the patent system. However, it also appeals to a point I made earlier about IP law: that it's also about our moral sense that inventors deserve to reap the benefits of their creations. If independent invention is recognized, then genuinely innovative inventors reap the sole rewards, as they should. But if it's really just a workaday solution to a workaday problem, then they have to share the rewards. And that's fine, because it appeals to our native sense of fairness. The patent system is supposed to reward sparks of genius; it's not supposed to be a lottery.

1Technically, this is the system in every country except the U.S., which uses a "first to invent" standard. However, this doesn't really affect the argument about simultaneous invention, and in any case we'll be switching to a "first to file" system next year. So don't let the details get in the way of the broader point here.

The Last Debate

I sort of watched the Republican debate tonight. That is to say, I did watch it. The TV was on, and my eyes were pointed in the appropriate direction. But I only sort of paid attention. Something tells me I don't really have to explain why.

Anyway, what this means is that I'm going to outsource my commentary to a pair of Andrews. First, Andrew Sprung:

When the discussion turns to foreign policy, there is nothing these three won't say to inspire the fear and hatred they think will push themselves past their rivals for the nomination and ultimately tear down Obama. Nothing. Romney says that Obama caved to the Russians — in negotiating a treaty that six former secretaries of state and George H.W. Bush supported as a fit renewal of the START treaty. Santorum asserts that Obama could have made the Green Revolution in Iran a success, when the merest hint of concrete U.S. support for any group in Iran is toxic. Gingrich tells the audience "you live in a world of total warfare" at a time when a lower proportion of humans is dying by violence than ever before in human history. Santorum builds Iran into a global threat of supersoviet proportions. Gingrich justifies a preemptive Israeli strike on Iran — with unstinting U.S. support — purely on the basis of what Israelis might "think" Iran will do if it ever gets a nuclear weapon.

Gingrich, finally, always one to take the crown in demagoguery, delivers the coda: under Obama, "as long as you're an enemy of America you're safe." And Romney, outdone as usual in potency of demagogic phrasing but never behindhand in his will to smear and lie, immediately agrees.

This was pretty much the only part of the debate that really penetrated my weariness. But the reason has more to do with body language and CNN's directorial decisions than anything the candidates actually said. What struck me was that Romney, Santorum, and Gingrich acted like a trio of bobbleheads whenever the subject was foreign policy. All disagreement suddenly disappeared. Whenever the camera cut away, they were watching attentively, nodding along appreciatively, and all but mouthing "good point" at whatever the speaker was saying. There wasn't a hair's breadth of difference between them. The mutual admiration was so total it was almost embarrassing.

And now, Andrew Sullivan:

Maybe I've lost my mind after all these debates, or maybe I secretly want him to win (because he would finally expose all the insanity that has been building in this party and needs venting). But I thought Santorum was on form tonight. My sense is that he will not lose his current momentum after tonight. I didn't feel Newt tonight. Romney doesn't wear well. Paul was great and funny and human.

I'm in a state of profound indecision about this. Should I root for Santorum, for exactly this reason? Because he'll really and truly represent the insanity the Republican Party has descended to, and provide us with a Goldwater moment that might shock them back into sensibility? Or is that juvenile and dangerous? After all, there's always a chance he could win.

I don't know. I just don't know. But it's hard not to feel that America really needs a long, hard look into the id of the Republican Party, and then needs to decide if that's where it wants to go. Santorum, even if he has no other redeeming features, at least provides us with that.

Here's a cool infographic. It shows (most of) the U.S. interstate highway system in the style of a London tube map. Click to enlarge. Click here to see the original version, which allows an even closer look.

Mitt Romney has released his new tax plan, and it calls for a 20 percent across-the-board reduction in income tax rates, elimination of the estate tax, repeal of the AMT, and a 30 percent cut in the corporate tax rate. Not to worry, though. It's designed to be revenue neutral because…it's going to…um…something. I really don't know how you get revenue neutral out of all this. I suppose by claiming that lower taxes will supercharge the economy and pay for themselves. That's the usual wheeze, anyway.

Okay, so rich people will pay a lot less in taxes. But how about spending? Well, Romney says he plans to reduce spending by $500 billion in 2016. However, he doesn't want to cut defense. He thinks that Medicare and Social Security reform should only affect "younger generations," so he doesn't plan to cut either of those either, at least not in the medium term. And interest on the debt is obviously outside his control.

So what's left? Domestic discretionary spending. But Romney has no actual proposals here. He wants to repeal Obamacare, but Obamacare is fully funded and repealing it won't save any money. He wants to block grant Medicaid, but that won't save any money either. It's just a different funding mechanism. And he wants government to operate more efficiently. Roger that.

So that still leaves us with $500 billion to cut out of the $1.7 trillion currently projected in domestic spending for 2016. How do you do that? Either with a 30 percent across-the-board cut or with smaller cuts to some programs and larger cuts to others. But which ones? Those are pretty big reductions. I wish guys like Romney had the guts to actually tell us where they want these cuts to fall, but they never do.

So this all seems like so much smoke and mirrors. But on the bright side, his plan for corporate taxes actually has some promise. In theory, anyway. He wants to lower the statutory rate, which would be okay if it's done along with broadening the base. He wants to make the R&D tax credit permanent, which is a good idea. And he wants to shift to a territorial taxation system, where corporations are taxed only on the income they earn in the United States. With proper regulation, this is a perfectly fine idea too.

Now, in practice, Romney says he wants to broaden the corporate tax base but doesn't say how, nor does he suggest any interest in the kind of rules it takes to make a territorial system work. But you never know. Those are potential negotiating points. It's not impossible that Romney's corporate tax plan could end up on the positive side of the ledger.

One of the interesting things about the rise of Rick Santorum is that it's giving a lot of people their first up-close-and-personal look at some of the more — what to call them? — unorthodox beliefs that animate American movement conservatives. They really do believe that we liberals support prenatal testing because it's a good way of ensuring that Down's Syndrome kids are all aborted. They really do believe that widespread contraceptive use has led directly to dissolution and cultural decay. They really do believe that "freedom of worship" is a dog whistle used by President Obama to indicate his contempt for religious liberties. They really do believe that global warming is just a hoax designed to allow lefty elites to seize control of the means of production.

And they believe that Europe is a post-socialist hellhole run by Godless bureaucrats and doomed to disintegrate. For example, here is Rick Santorum peddling a common myth:

In the Netherlands, people wear different bracelets if they are elderly. And the bracelet is: ‘Do not euthanize me.’ Because they have voluntary euthanasia in the Netherlands but half of the people who are euthanized — ten percent of all deaths in the Netherlands — half of those people are enthanized involuntarily at hospitals because they are older and sick. And so elderly people in the Netherlands don’t go to the hospital. They go to another country, because they are afraid, because of budget purposes, they will not come out of that hospital if they go in there with sickness.

This Soylent Green version of life in the Netherlands attracted my attention because I ran across it a while back and took the time to look into it. I'm not going to bother digging up all the references a second time, but basically this is totally untrue. The bracelets don't exist. Euthanasia accounts for only about 2% of all deaths in the Netherlands. And Dutch safeguards are, in fact, quite effective. No system is perfect, but virtually no one in the Netherlands is euthanized without explicit, repeated requests — and the tiny number of violations of the rules are mostly technical. No one is allowed to die who doesn't want to.

But the Dutch myth persists, and Santorum is doing nothing more than repeating something that's a commonplace in movement conservative circles. Glenn Kessler, whose family is originally Dutch, provides all the facts here. Not that it will make any difference. These myths simply never die, and the movement conservative machine has already produced dozens of defenses of Santorum's statement. They want to believe in the secular annihilation of everything traditional and decent, so they're going to believe whether it's actually true or not.