Petrodollars Recycled to America’s Underclass?on January 9, 2008 at 12:00 am
Wolf, M. (2008). Challenges for the world’s divided economy. Financial Times. January 9, 2008. Available online: http://www.ft.com/cms/s/0/9a62eaa8-be14-11dc-8bc9-0000779fd2ac.html?nclick_check=1.
As Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard note in a brilliant new paper, this had similarities to the recycling of petrodollars to developing countries that preceded the debt crisis of the 1980s. This time, surplus savings were, in their words, “recycled to a developing country that exists within the US”: the subprime borrowers. The consequences for banks also look disturbingly similar.
One is tempted to say “People who were harmed will learn from this experience,” but many might not. While there’s plenty of in-group variation, between-income-group variation in general intelligence is stark. Many of the people who were directly bitten by the subprime mess are precisely the people least likely to learn from their experience.