Americans are 'deadbeats' about paying off debts

Attendees sit under the debt clock set in motion to tally the national debt at the Republican National Convention (RNC).

Image of A Nation of Deadbeats: An Uncommon History of America's Financial Disasters
Author: Scott Reynolds Nelson
Publisher: Knopf (2012)
Binding: Hardcover, 352 pages

America is a nation that was built largely on borrowing. And as it turns out we're not so great at paying those debts off. Scott Reynolds Nelson argues in his new book, "A Nation of Deadbeats," that our deadbeat nature has been the cause of many of the country's economic crisis.

"The U.S. could not have existed as the U.S. without lots and lots of borrowing," Reynolds Nelson said. "The U.S. could not have settled in California, could not have settled in Texas, could not have done any of the expansion that took place so rapidly without a great deal of borrowing. The thing is that: we don't pay. And there are lots and lots of times that Americans don't pay and those are the crises that are the heart of not just the American economic system, but at the heart of American politics."

He said that many economists these days haven't really been trained in economic crises. "[The] long gap between 1929 and 2007 led lots of economists to believe that they had it figured all out -- 'we just need to do this, we just need to do that. There are simple things that resolve these financial panics, so there's no reason to study them anymore.'"

And furthermore, the problem is the Depression of 1929 isn't even a good model to compare the 2007-2008 financial crisis to.

"1929 is a terrible model in a way for this crisis," Reynolds Nelson said. "What we had in the U.S. was lots and lots of consumer debt, lots and lots based in the U.S., lots and lots of foreign lenders. But all the other crises that we had in the United States, all the other financial crises, have been American borrowers and lenders mostly in Europe. And it's mostly been consumer debt that's been at the heart of those crises. So 2007 actually looks like every other crisis except 1929."

Kai Ryssdal: Today's news about the Treasury Department selling off its stake in AIG is perhaps an unwelcome reminder of the way in which taxpayers got a stake in AIG. A financial crisis the likes of which this country hasn't seen in 80 years.

Scott Nelson talks about that crisis and the eight or so other big ones we've had in this country since we've been a country in his new book. It's called "A Nation of Deadbeats."

Welcome to the broadcast.

Scott Nelson: Thanks so much for having me.

Ryssdal: I wanted to take issue with the title for a second.

Nelson: Ah, yes.

Ryssdal: I get that it's provocative and you've got to sell books and all that stuff, but the fact of the matter is that the way this country has grown, it is by borrowing, is by credit, is by leverage if I could a dirty word. And it's a little tricky to say, 'Well, maybe we ought to not do that.'

Nelson: No, I think you're right. I had my own reservations about the title. "Nation of Deadbeats" -- partly what I'm trying to call attention to is precisely what you say, that the U.S. could not have existed as the U.S. without lots and lots of borrowing. The U.S. separates from Britain in the revolution, and then borrows from Britain and the rest of Europe for 200 years. The U.S. could not have settled in California, could not have settled in Texas, could not have done any of the expansion that took place so rapidly without a great deal of borrowing. The thing is that: we don't pay. And there are lots and lots of times that Americans don't pay and those are the crises that are the heart of not just the American economic system, but at the heart of American politics.

Ryssdal: What do you think of what has happened since 2007, 2008? We had a financial crisis based largely, started largely in this country, which has turned into a sovereign debt crisis largely in Europe.

Nelson: Let me go back to another panic I think that's a whole lot like this one: that's the Panic of 1837. In that one, it's cotton that's the central problem. Lots and lots of people default as cotton prices drop, they default on those debts. There's a massive collapse. The way that a bunch of states in the United States back their way out of this crisis is by issuing lots and lots of sovereign debt. And now, as the first payments are due, it's become clear that those debts are not payable, and what happens in the U.S. is that seven or eight states all defaulted in 1841. John Quincy Adams was very angry about Mississippi not paying its debts in 1841, and he had suggested removing all U.S. gunboats from the Mississippi River to allow British creditors to send in their own gunboats and collect the debts that Mississippi wouldn't pay. And that's the same crisis that we're seeing in the EU now, is Angela Merkel and others saying, 'We have an EU, we have the euro, but we have this sort of semi-sovereignty.'

Ryssdal: This is a historical book. It's a survey of America's financial disasters, and if you read the list of them in the introduction of this book, there's a whole bunch in the 1800s and then there's 1929. And then there's nothing until 2008. You would have thought we'd had this figured out, right?

Nelson: You would have thought, and I think that that's part of it, that that long gap between 1929 and 2007 led lots of economists to believe that they had it figured all out -- 'we just need to do this, we just need to do that. There are simple things that resolve these financial panics, so there's no reason to study them anymore.' Anybody trained after say, 1964-65, in economics doesn't really know anything about the other financial panics, it's not talked about.

Ryssdal: So the one that most people have studied -- including by the way, Ben Bernanke -- is the Depression in 1929; he wrote his Ph.D thesis on that, famously. And those are the comparisons we've heard for the past four to five years. Are those apt comparisons, though?

Nelson: No, 1929 is a terrible model in a way for this crisis. What we had in the U.S. was lots and lots of consumer debt, lots and lots based in the U.S., lots and lots of foreign lenders. But all the other crises that we had in the United States, all the other financial crises, have been American borrowers and lenders mostly in Europe. And it's mostly been consumer debt that's been at the heart of those crises. So 2007 actually looks like every other crisis except 1929.

Ryssdal: Scott Nelson, his book is called "A Nation of Deadbeats." He teaches history at the College of William and Mary. Scott, thanks a lot.

Nelson: Kai, thank you so much.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
Image of A Nation of Deadbeats: An Uncommon History of America's Financial Disasters
Author: Scott Reynolds Nelson
Publisher: Knopf (2012)
Binding: Hardcover, 352 pages

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