“I had hoped that the Americans would change their way of thinking, that they would take responsibility and only spend as much as they made,” says Jakobeit. But Americans aren’t like that. Americans are not careful.
The political leadership, says Raghuram Rajan, deliberately made sure that people at the lower end of the socioeconomic scale were provided with low-interest mortgage loans, so that they would forget that their incomes were stagnating. “It was easy for people to get credit, and when home prices went up they felt rich, borrowed more money and spent it,” says Rajan, who teaches at the University of Chicago. It’s the old concept of bread and circuses. According to Rajan, this approach was easier for the people in power, on both the right and the left, than investing in education or health care.
But there are pain thresholds in every country, including one for debt. According to economists, that threshold is at 90 percent in the United States. When government debt reaches 90 percent of the gross domestic product, the country begins to feel sick. People lost confidence in a better future, investors stop investing, consumers stop buying and the economy stops growing. America reached its pain threshold in the second quarter of this year. Alan Greenspan, once the cheerleader of a society that lived beyond its means, is now urging the US to cut back on borrowing.
Greenspan was the first pop star of the economy, the face of what was then a new era, one in which the economy was shaking off government regulation and corporations no longer saw the state as a partner, but as an adversary. It was the phase of constant tax cuts, the stock market boom and the New Economy, a time economic liberals saw as an era of liberation. While Greenspan was in office, from 1987 to 2006, America experienced the biggest boom in its history and, at the same time, the economic, political and social triumph over the socialist model. US GDP doubled during that time. The only problem was that it wasn’t real or robust, and that it was fueled by too much pretense and naïve hope of never-ending growth.