|March 8, 2005/New York TIMES
The Debt-Peonage Society
By PAUL KRUGMAN
Today the Senate is expected to vote to limit debate on a bill that
toughens the existing bankruptcy law, probably ensuring the bill's
passage. A solid bloc of Republican senators, assisted by some
Democrats, has already voted down a series of amendments that would
either have closed loopholes for the rich or provided protection for
some poor and middle-class families.
The bankruptcy bill was written by and for credit card companies, and
the industry's political muscle is the reason it seems unstoppable. But
the bill also fits into the broader context of what Jacob Hacker, a
political scientist at Yale, calls "risk privatization": a steady
erosion of the protection the government provides against personal
misfortune, even as ordinary families face ever-growing economic
The bill would make it much harder for families in distress to write off
their debts and make a fresh start. Instead, many debtors would find
themselves on an endless treadmill of payments.
The credit card companies say this is needed because people have been
abusing the bankruptcy law, borrowing irresponsibly and walking away
from debts. The facts say otherwise.
A vast majority of personal bankruptcies in the United States are the
result of severe misfortune. One recent study found that more than half
of bankruptcies are the result of medical emergencies. The rest are
overwhelmingly the result either of job loss or of divorce.
To the extent that there is significant abuse of the system, it's
concentrated among the wealthy - including corporate executives found
guilty of misleading investors - who can exploit loopholes in the law to
protect their wealth, no matter how ill-gotten.
One increasingly popular loophole is the creation of an "asset
protection trust," which is worth doing only for the wealthy. Senator
Charles Schumer introduced an amendment that would have limited the
exemption on such trusts, but apparently it's O.K. to game the system if
you're rich: 54 Republicans and 2 Democrats voted against the Schumer
Other amendments were aimed at protecting families and individuals who
have clearly been forced into bankruptcy by events, or who would face
extreme hardship in repaying debts. Ted Kennedy introduced an exemption
for cases of medical bankruptcy. Russ Feingold introduced an amendment
protecting the homes of the elderly. Dick Durbin asked for protection
for armed services members and veterans. All were rejected.
None of this should come as a surprise: it's all part of the pattern.
As Mr. Hacker and others have documented, over the past three decades
the lives of ordinary Americans have become steadily less secure, and
their chances of plunging from the middle class into acute poverty ever
larger. Job stability has declined; spells of unemployment, when they
happen, last longer; fewer workers receive health insurance from their
employers; fewer workers have guaranteed pensions.
Some of these changes are the result of a changing economy. But the
underlying economic trends have been reinforced by an ideologically
driven effort to strip away the protections the government used to
provide. For example, long-term unemployment has become much more
common, but unemployment benefits expire sooner. Health insurance
coverage is declining, but new initiatives like health savings accounts
(introduced in the 2003 Medicare bill), rather than discouraging that
trend, further undermine the incentives of employers to provide
Above all, of course, at a time when ever-fewer workers can count on
pensions from their employers, the current administration wants to phase
out Social Security.
The bankruptcy bill fits right into this picture. When everything else
goes wrong, Americans can still get a measure of relief by filing for
bankruptcy - and rising insecurity means that they are forced to do this
more often than in the past. But Congress is now poised to make
bankruptcy law harsher, too.
Warren Buffett recently made headlines by saying America is more likely
to turn into a "sharecroppers' society" than an "ownership society." But
I think the right term is a "debt peonage" society - after the system,
prevalent in the post-Civil War South, in which debtors were forced to
work for their creditors. The bankruptcy bill won't get us back to those
bad old days all by itself, but it's a significant step in that
And any senator who votes for the bill should be ashamed.