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The Great (Debt) Seduction--Skeel

David Brooks argued in his column yesterday that traditional norms of thrift and frugality have been displaced in America by norms that “encourage debt and living for the moment.” Among the causes of this shift, he blames state governments’ promotion of the lottery, pay day lenders, credit card companies, and Congress’s own profligacy with debt. The column is well worth reading, as is the think tank report he discusses, “For a New Thrift: Confronting the Debt Culture.”

Two thoughts on these issues:

1) Gambling and Risky Debt. It seems to me that the state lawmakers’ aggressive promotion of lottery play, and the culture that creates, makes it much harder than it should be to criticize borrowers who gambled on subprime mortgages in recent years. The states themselves have been sending a message that rolling the dice is a good thing. (In a notorious New York ad from a few years ago, a mother poked fun at her hardworking daughter, saying there’s no need to study because the mother had bought lottery tickets).

Will the pernicious effect of gambling on financial responsibility be a big campaign issue this summer and fall? Not likely.

If you wonder why, think for a moment about how much money the states get from gambling, and the consequences if that money disappeared: more taxes (enough to keep Republicans quiet), fewer programs (silence on the Democratic side). And many states direct some of the proceeds to a politically powerful, middle class constituency. Here in Pennsylvania, it’s “elder Pennsylvanians.” In Georgia, its full scholarships to the University of Georgia for good (disproportionately middle class) students.

2) Evangelicals and usury regulation. As one response to the culture of debt, Brooks suggests that “usury laws could be enforced and strengthened,” to counteract the fact that payday lenders “seductively offer fast cash– at absurd interest rates– to 15 million people each month.” For the past few weeks, I’ve been carrying around a fascinating article by Steven Graves and Chris Peterson called “Usury Law and the Christian Right.” Graves and Peterson plotted every payday lender they could find (24,000) on a map and compared the density of payday lenders in a political district to the relative strength of evangelicals and Mormons. They found a remarkable (and to my mind, not surprising) correlation: the greater the influence of the Christian Right (as they define it), the higher the concentration of payday lenders. Graves and Peterson do not attempt to determine why evangelical influence is correlated with more payday lenders. I strongly suspect the connection, which I find disheartening, is due to evangelicals’ aversion for much of the twentieth century to social legislation, something I’ve discussed on this blog before. It’s free markets taken a little too far.

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Comments ( 7 )

I can't tell that they controlled for poverty. Did they? That would seem an obvious explanation -- evangelicals are more common in poorer states (esp. the South), and payday lenders are also common in poorer states. So to know if this is more than a spurious correlation, you'd have to control for poverty.

Could you explain in some more detail the connection you suspect between payday lending and the "Christ right?" Is it simply that Christians, in general, dislike social legislation--such as laws prohibiting payday lending? Or is there another connection that you are getting at that I'm not seeing?

Thanks!

Why do you think evangelicals are skittish about social legislation that would protect the poor and marginal, especially from economic predators?

Looking at history, for good or ill, the Puritans seemed less hesitant about economic legislation than many of their contemporary descendants. Even in the 19th century, evangelicals were often involved in legislation to limit work hours, curb child labor, improve working conditions, and so on.

When did the shift occur and why?

fwiw...I haven't read the study, but I've read numerous commentaries that have criticized it for the reasons Stuart suggests...

I thought I would chime in with a response to the question about whether Dr. Graves and I controlled for poverty. I have noticed a bit of confusion about this in cyberspace discussion of our piece. Hopefully my comments will help.

Empirically, our study has only a modest goal. It reports a new geographic fact: payday lenders are relatively numerous in the Bible Belt and the Mormon Mountain West. That is, our data tell us where payday lenders are; they do not tell us why these lenders are where they are. Importantly, our data do not answer more difficult and ambitious questions regarding the causal relationship between lending practices and moral beliefs. The number of payday lenders in these and other states is likely caused by a complex pattern of social, political, and economic forces, including not only poverty but also income, wealth, political affiliation, race, immigrant status, health, insurance, education, familial relationships, and others. Faith may or may not be one factor among others that created the geographic pattern we report. But, our empirical database of payday addresses will not answer this question. Of this large, complex puzzle, this study adds one discreet but important piece: there are relatively more payday lenders in Conservative Christian states.

We are merely reporting a correlation, not attempting to prove a causal relationship. Still, to give our correlation some contextual depth we also ran correlation tests between payday lender location density and the percent of a population living below the poverty line as well as a correlation test betweeen payday lender location density and the percent of a non-white population. Not surprisingly, there was a correlation with both of these variables. But, the correlation between our measure of conservative Christian political power was stronger than both the race and poverty variables.

Still, as interesting as these poverty and race correlation coefficients are, it is equally important to note what they do not establish. The core finding of our study is simply that lenders are relatively numerous in most Southern and Midwestern states. It is also true that payday lenders are relatively more numerous in states with larger populations living in poverty and with larger nonwhite populations. However, other things being equal the likelihood of a state having higher payday lender densities is greater as Christian power rises than it is as poverty or nonwhite populations rise. Nevertheless, because we do not conduct multivariate regressions our analysis cannot establish whether the greater numbers of payday lenders are present in conservative Christian states because of the faith orientation of those state’s populations. The correlation coefficients with the percent of state populations living below the poverty line and the percent of the nonwhite population are provided only to give some context to our primary finding. While the correlation coefficient for Christian power and payday lending density is greater than race and poverty, it is nevertheless entirely possible that race and poverty have a causal effect on payday lender location density, while religious beliefs do not. Such a conclusion would be entirely consistent with our findings. The geographic overlap between payday lending density and conservative Christian states may be coincidental—our data cannot confirm this proposition.

Once again, I hope that helps clear up any confusion regarding our claims.

A belated reply to several of the comments and questions on this post:

1) The only thing I would add to Chris Peterson's helpful explanation of the precise findings of his article is that I strongly suspect that a regression that controlled for income would not eliminate the correlation between Christian influence and the prevalence of payday lending. Hopefully this will be the next step in the scholarship in this area.

2) As far as the reasons for the relationship, if it does indeed exist, my sense is that in recent decades evangelicals have tended to be hostile to social legislation and avid supporters of free markets, both of which would align them against legislation designed to regulate payday lending. As the Garver comment notes, this was not always the case. For much of American history, evangelicals were major proponents of social legislation. The shift seems to have occurred around 1925, the year of the Scopes trial and William Jennings Bryan's death, and a point at which Prohibition was proving to be a major failure. At about this time, evangelicals began to turn away from cultural engagement. (These developments are discussed in the first 10 or 15 pages of this
article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=929850).

A series of debt can lead to a very difficult cycle of unmanageable finances. We should find ways on reducing debt the cheapest way possible and enjoy financial freedom. Thanks for the article!