"The Culture of Debt?"

Which type are you?:

The Culture of Debt, by David Brooks, Commentary, NY Times: On the front page of Sunday’s Times, Gretchen Morgenson described Diane McLeod’s spiral into indebtedness, and now a debate has erupted over who is to blame.

Some people emphasize the predatory lenders who seduced her with too-good-to-be-true credit lines and incomprehensible mortgage offers. Here was a single mother made vulnerable by health problems and divorce. Working two jobs and stressed, she found herself barraged by credit card companies offering easy access to money. Mortgage lenders offered her credit on the basis of the supposedly rising value of her house. These lenders had little interest in whether she could pay off her loans. They made most of their money via initial lending fees and then sold off the loans to third parties.

In short, these predatory companies swooped down..., took what they could and left her careening toward bankruptcy.

Other people emphasize McLeod’s own responsibility. She is the one who took the credit card offers knowing that debt is a promise that has to be kept. After her divorce, she went on a shopping spree to make herself feel better. After surgery, she sat at home watching the home shopping channels, charging thousands more.

Free societies depend on individual choice and responsibility, those in this camp argue. People have to be held accountable for their indulgences or there is no justice. ...

And yet..., there is a third position. This is the position held in overlapping ways by liberal communitarians and conservative Burkeans.

This third position begins with the notion that people are driven by the desire to earn the respect of their fellows. ...Decision-making — whether it’s taking out a loan or deciding whom to marry — ... is a long chain of processes, most of which happen beneath the level of awareness. We absorb a way of perceiving the world from parents and neighbors. We mimic the behavior around us. Only at the end of the process is there self-conscious oversight.

According to this view, what happened to McLeod, and the nation’s financial system, is part of a larger social story. America once had a culture of thrift. But over the past decades, that unspoken code has been silently eroded.

Some of the toxins were economic. ... Some were cultural. ... Some were moral. ... Norms changed...

McLeod and the lenders were not only shaped by deteriorating norms, they helped degrade them. ... Each time an avid lender struck a deal with an avid borrower, it reinforced a new definition of acceptable behavior for neighbors, family and friends. In a community, behavior sets off ripples. ...

And now the reckoning has come. The turn in the market punishes many of those seduced by financial temptations. ...

Meanwhile, social institutions are trying to re-right the norms. ... But the important shifts will be private, as people and communities learn and adopt different social standards. ... As the saying goes: People don’t change when they see the light. They change when they feel the heat. [Brooks discussed the same topic not too long ago.]

I'm not sure I buy the changing cultural norm story, but even if it's true, it doesn't answer the deeper question of what caused the change in attitudes. Why now? Brooks offers:

Some of the toxins were economic. Rising house prices gave people the impression that they could take on more risk. Some were cultural. We entered a period of mass luxury, in which people down the income scale expect to own designer goods. Some were moral. Schools and other institutions used to talk the language of sin and temptation to alert people to the seductions that could ruin their lives. They no longer do.

But I don't find these particularly compelling. The house price story seems to hold together, having a valuable asset as backup would allow more debt, but in the past when there were housing price run-ups, why didn't norms erode then, why was this episode different? Blaming schools seems to miss the mark, and why is it suddenly so important to keep up with the neighbors, more so than in the past? For that reason, I prefer a technological based explanation - a change in the availability of credit for example - but that story seems less than fully satisfactory as well.

Has there been a cultural shift, or is it just "economic fundamentals" (or something else entirely)? I find myself resisting the cultural shift story and wanting, instead, to cite factors that make the increase in debt holding by households a rational economic choice (hence the attempt to find a technology story, credit card availability on the internet, etc.), but if it was a cultural shift, what caused it? Is Brooks right?

Update: See also Tanta at Calculated Risk and Jim Sleeper at TPM Cafe.