A hundred dollars?

Last time I said:

One of the biggest distortions life creates is that in the real world our reliance on credit grows over time. If we start out borrowing an average of a hundred dollars a year, as in 1956, we can end up fifty years later borrowing forty-four hundred dollars a year. But that's what happens when economists and policymakers think that a constantly rising debt goes "hand in hand with improvements in economic well-being".

That hundred dollars.

To be clear, I was looking at household debt when I said it. Take household debt, change the units to "Change from Year Ago, Billions of Dollars", and make the frequency "annual" so you get only one number for each year. Then divide it by U.S. Population (with units in thousands; VERIFY IT) and multiply the ratio by a million (to convert debt in billions to debt in thousands) to get a per capita number.

Here's what I got last time:

Graph #1

101.16508 in 1956 ... about a hundred dollars ... and 4398.80697 in 2006 ... about 44 times as much debt per capita. As I said. But come to think of it, we should probably correct for inflation.

We're looking at the change in debt. That's a flow variable. So we can use the same calculation you'd use to convert GDP from nominal to real: divide the change in prices out of the debt numbers, and multiply by 100. I'll be nice, and use the Personal Consumption Expenditures: Chain-type Price Index instead of the CPI. (The Fed uses a PCE index, not the CPI.) But I'm not going with the one that excludes food and energy prices. I'm not all that nice.

Here's what I got now:

Graph #2

668.19738 in 1956, and 4932.83577 in 2006 ... something above a seven-fold increase, less than seven and a half. Seven, seven and a half versus a 44-fold increase, the difference between them due entirely to inflation.

But anyway, per capita household borrowing in 1956: $668.20. That's in today's dollars (or year 2012 dollars, really). Does that sound a little more reasonable than $100?

So as I was saying:

One of the biggest distortions life creates is that in the real world our reliance on credit grows over time. If we start out borrowing an average of a $668.20 a year, as in 1956, inflation aside, we can end up fifty years later borrowing $4932.84 a year. But that's what happens when economists and policymakers think that a constantly rising debt goes "hand in hand with improvements in economic well-being".

There is no doubt in my mind that we are a cashless society today because of our pro-credit-use pro-growth policies. We should change those policies before it's too late, because the reliance on credit is killing us.