‘Living within one’s means’ is a powerful maxim, and for at least the last hundred years, financial planners have encouraged Americans to budget their income. For generations, these well-intentioned scolds have pushed budgets as the best way to rein in what they saw as over-consumption by the working classes and especially immigrants.
Counter-intuitively, the real danger of budgets lies not in breaking them, but in placing too much faith in them. Budgets fool us into believing that they will not only tame us, but the world around us as well. After World War II, Americans enjoyed a resurgent prosperity and a new consumer culture of aggressive borrowing and budgeting developed. Instead of saving for their purchases, young couples of the 1950s borrowed as much as they could on installment plans. All this debt became neatly legitimated by the moral authority of the “budget.”
For those who had come of age in the Great Depression, such faith in the future was foolish. In a famous 1956 essay, the famous postwar social critic William Whyte labeled budgets the “opiate of the middle class” since they dulled borrowers to the dangers of overspending.
For this generation, Whyte was wrong and consumers’ faith was rewarded with Cadillacs and, fur coats. Was Whyte wrong about budgets? No. Whyte was wrong about the economy. For twenty-five years after WWII the economy grew, wages rose, and those eager borrowers made good on their loans. But the rising economy, determined their outcomes. The stably growing economy turned budgeted borrowing into good sense, and the faithful consumers’ taught the importance of budgets to the next generation. Yet this conventional wisdom, borne of an era of stability, has persisted into our own era of volatility, shaping our conversation about the present crisis that obscures its true structural causes.