AIn my pre-COVID life, while working as a salaried (read: creditworthy) newsroom leader and hurtling on the Acela train between offices in New York City and Washington, DC, I accumulated a dozen or so credit cards. Each had some set of enticements that made it worth the small hit to my credit score and the inevitable annual fee. The cards were convenient, lucrative, and laden with various perks for the business traveler, who could run reimbursable expenses on the card, file them over a free drink in the private airport lounge, and watch the points flood in. I wasn’t using the cards for the credit. The joke was on the banks.
Years later, lacing together a very different life as a freelance writer, I would come to understand that the joke was actually on the other inhabitants of the credit ecology: merchants paying enormous transaction fees—a kind of permanent inflation—and those many card users whose income was insecure or inadequate and for whom the lifeline of revolving credit led to ruin. (More than a quarter of US households reported unmanageable debt in 2023.) In September 2025 I stayed in a couple of plush hotels on a road trip to Tennessee using nothing but Chase points—the only way I could afford it. (The nicer properties came with a spending credit, which I could use to buy dinner.) I’d squeeze in work on an hourly consulting gig atop those handsome bed linens, trying to make sure the trip’s other expenses didn’t curdle into an unpaid balance. Far from a victim, sure—but the card industry’s menace hung more thickly in the air than it had in the places where I’d racked up the points.
By the time of that trip, I had completed this interview with Sean Vanatta, a poised and fluent American financial historian who lectures at the University of Glasgow in Scotland. His first book, Plastic Capitalism: Banks, Credit Cards, and the End of Financial Control, published in 2024, examines capitalism’s most rapacious instincts: cards mass-mailed to people who never requested them, deceptive marketing on a grand scale, and ruthless lobbying to secure legislation whose only beneficiaries are banks. It’s a portrait of how the convenience and, in time, the brute-force ubiquity of the credit card not only reshaped how and from whom we buy things but also dislodged in-person loan agents—the community gatekeepers to finance, whom Vanatta calls the enforcers of banking’s place-based social contract. (His second book, from last year, is titled Private Finance, Public Power: A History of Bank Supervision in America.) To be realized, the national banks that displaced them relied on the complicity of everyone who’s ever wanted to make it more frictionless to spend money—from consumers to members of Congress; from the conflicted election-year administration of President Jimmy Carter to the South Dakota statehouse. The long-game seduction campaign of convenience and instant gratification won over well-heeled twentieth-century consumers and spread across industries around the world, gradually and ingeniously remaking the regulatory state.
Vanatta and I spoke on Zoom last summer, and he deployed what seemed to be effortless—and, over a couple of hours, tireless—answers to my questions about the history of consumer credit in America, especially its enduring tool and totem: the wallet-size card. From its beginnings as a transactional device between brick-and-mortar merchants and their customers, the card has gradually turned into the hub of many people’s financial lives, an arbiter of our spending decisions, and the credential of a kind of citizenship that, for better or worse, sits almost beyond physical places and human relationships.
Not all conversations are as linear and succinct as they appear. This interview has been condensed and edited for clarity.—Ed.
SEAN VANATTA
Owen: What is particularly American about the rise of credit cards, and how has that influenced other places in the world?
Vanatta: It comes back to the moment about a hundred years ago when mass consumerism was new. During the Great Depression and the New Deal, the United States, unlike other places, made household borrowing an engine of economic recovery, and then later of prosperity. It kind of worked, in the sense that it delivered mass suburbanization and mass abundance for privileged households. By the end of World War II, America was responsible for 50 percent of global manufacturing. It’s hard to overstate how dominant the US economy was in the early postwar period, and that dominance created the grounds for affluence, financed by consumer credit. Once those habits were in place, even in the uncertain economic times of the 1960s and especially the 1970s, the country really doubled down on credit as the way to push prosperity. When regulatory limits were removed, borrowers deemed less creditworthy got access, often at predatory interest rates. The subprime-mortgage story had a similar message to consumers: This is the way you access the American dream—through credit.
In many other societies, consumer credit is now pretty well developed, but there has been less political and economic investment in it as an engine of prosperity. You could argue that it distorts your perception of your social class when you live as if you had a higher wage, buying now the luxuries you might enjoy in the future if you saved your money. Envisioning yourself as a person of greater means encourages you to spend, pumping money through the economy, generating economic activity that ultimately employs people. But all that is sitting on a giant pile of debt: national debt, business debt, household debt. It’s terrifying to think that, at any moment, this could all come crashing down. But as long as the fantasy machine is running, as long as we believe in it, the system continues. This was the general message of Ronald Reagan’s presidency: I give you permission to believe in it. This is how it should be, and it works. Credit is so much about confidence, and it’s uniquely American that this confidence game has worked for so long. It’s just a question of whether it can continue.
Owen: In post-Depression America, financial relationships were essentially social. Bankers were well-connected members of their communities with personal connections to their customers. The bank was a building where you did your banking. What were the elements of what you call the “place-based social contract,” and how did they come to be?
Vanatta: The US banking system was historically very local. There were experiments with what we would now recognize as branch banking in the early 1800s, but most states settled on a model called unit banking, in which each bank had just a single office. Before the Civil War, states played an enormously important role in the governance and regulation of banks within their borders. So New York’s banking system was different from the system in North Carolina or Alabama or Michigan. This highly localized financial system was connected to American ideals about community leadership and democracy, but it was also about local elite control, and you can see ties to racial hierarchies in American society. A key theme of nineteenth-century US history is this tension between localism and centralization, right? You’ve got local banks in your community, but you’ve also got big banks in New York City that want to move into your market. Local companies start to get squeezed by big corporations. Railroads start connecting what were once hard-to-reach places.
During the Civil War, the Union states tried to reconcentrate financial power in the federal government. Nationally chartered banks were subject to some state regulations based on where they were located; state-chartered banks were also subject to those regulations, and neither could build branches across state lines. Within this highly localized financial system emerged a place-based social contract. Voters had the ability to continuously renegotiate how the financial system worked in their states. Certainly these were negotiations where power still mattered. Bankers have always had a loud voice in state capitals, as they do in Washington, DC. But local democratic processes and social movements could have an effect. Bankers’ customers were also voting on local banking policy. So it was sort of financial democracy—or, at least, much closer to the ground than a regulatory system based in DC.
Owen: That level of disaggregation is unthinkable at this point. I live in New York, my sister is in Salt Lake City, and we can both be at a Wells Fargo or Chase branch in less than ten minutes. Yet this localized finance system was the case for the majority of American history?
Vanatta: Yeah. In 1920 there were thirty thousand individual banks in the United States, and that’s just commercial banks. There were also other kinds of financial institutions, and no other country in the world looked anything like that. Most countries had much more concentrated financial systems. In the same year, I think Canada had something like seven or eleven big banks. There are still many more banks in the United States than in any other similar economy. But the system was unbelievably fragmented, such that you would only know the banks that were in your community. You’d have no familiarity with banks in other places, which would make it really hard if you had to move. Trying to reestablish credit was much more difficult in a world where all the credit bureaus were local too.
Owen: In the early 1980s two of the biggest national banks relocated their credit card operations to South Dakota and Delaware to unburden themselves of state limits on interest rates. By this time, credit card issuers were sprawling national enterprises with little, if any, person-to-person social architecture. It strikes me that, although banking had its own reasons for this depersonalization, you can see parallels across the culture. To what extent was the way it played out in the financial realm a result of larger factors?
Vanatta: Banking was part of a set of American postwar trends that caused tension between the local and the national. Banks moved into the credit card market because they saw these small, place-based worlds they had occupied start to break apart. To find new consumers, they needed to reach beyond the geographic limits of their markets. Among the large sweep of postwar changes was that people began moving: from cities to suburbs; across the country in search of jobs; the great migration of African Americans from the South to the North. Rural communities were breaking up. I mentioned earlier how the railroads connected far-flung places. Interstate highways and air travel were a continuation of that. The communications revolution, from the telegraph to the telephone, is part of the whole country becoming closer and more concentrated and breaking down some of those tight-knit local bonds. We continue to see localized social groups break down because of the internet. But community retains a lot of cultural power, and it’s just a fact that you always need a way of knowing others and identifying yourself within a community.
Credit is so much about confidence, and it’s uniquely American that this confidence game has worked for so long. It’s just a question of whether it can continue.
Owen: Credit cards had antecedents in retail charge accounts and other forms of revolving credit, some of which used physical tokens, like a paper scrip. But the card obviously won out. Who introduced the credit card as we know it?
Vanatta: There are a couple of different origin stories. If you search for “inventor of the credit card” in newspaper databases, you’ll find a series of obituaries for guys who claimed to have invented the credit card in the 1950s and 1960s. This actually led me to one of these guys, Stanley Dashew, whose story I’ll tell in a minute. But first, in the 1910s and 1920s department stores began offering credit to affluent consumers. The challenge for the store was, if you have thousands of customers coming in every day, it’s difficult to identify the ones you’ve already granted credit to. So now you need a physical form of identification to speed up transactions, because the wealthy person who comes in and expects access to credit doesn’t want to wait around for you to confirm their charge account. Eventually this developed into metal embossed plates that worked with carbon paper as part of a mechanical billing apparatus that recorded the transaction. Later the store mailed the bill to the customer’s house. The metal plate with the customer’s name, address, and account number is what became the credit card.
The problem with metal is it’s heavy and can corrode. In the 1950s this guy Stanley Dashew, who was out in California, invented an embossing machine that the Navy used to make metal cards to keep track of inventory. Those cards corroded in the salty sea air. So he figured out how to emboss plastic cards and sold this concept to Bank of America and American Express. The reason why American Express cards have “Member Since” printed on them is because Dashew wanted to show off that his equipment could emboss more characters than his competitors’. There was a boom in the credit card market at this time—lots of local banks started issuing cards—which explains all the claims in the obituaries, but Dashew has a legitimate claim to inventing the plastic card.
Owen: There was a long-running tension in the twentieth century over who got access to credit, which mostly had to do with living up to white, middle-to-upper-class, heteronormative ideals. How did we get from there to the mass mailing of ready-to-use credit cards to consumers across the country, often with little or no due diligence by the banks?
Vanatta: The challenge that bankers faced had to do with that exodus to the suburbs. The biggest banks had their offices in central business districts of cities. A white male breadwinner with a middle-class job may have been a good customer for a bank in downtown Chicago. By the 1960s, he’s living in the suburbs, and he doesn’t want to drive into the city to do his banking. Or, more to the point, his wife did the family’s banking, and she found it more convenient to go somewhere local. And cities were becoming more racially diverse, causing many white middle-class families to leave.
This was happening all over the country, and downtown bankers started worrying about losing those customers, who might shift their business to a bank in their community. They decided that one way to keep those customers was to give them credit cards, but that involved risk: How would they identify them or vet them? If they got a list, for example, of people who’d bought a new car at a dealership, many of them might match the ideal customer profile. The banks assumed that most of the people with checking accounts matched this profile as well. But it was too expensive to sort the good credit risks from the bad, because they didn’t have the data or the technology to do this effectively in the 1960s. And each banker launching a credit-card plan worried about his competitors getting cards in the mail first, and therefore getting the affluent suburban customers first. So bankers assumed they just had to engage in reckless marketing, and in the late 1960s they mass-mailed tens of millions of unsolicited credit cards across the country, some of them to the kinds of people those banks would have never willingly given credit to.
Owen: I grew up in Salt Lake City, Utah, in the eighties, where the place-based social contract was still robustly in place because of the Mormon Church. I was raised Mormon, and there were people in my community who would assess your worthiness—that was the word they used—to go to the temple. Reading your book was the first time I’d thought about the specificity of the word creditworthy.
Vanatta: Zoom out of banking a little bit: Who is the American economy in the postwar era designed for? During the Great Depression we were trying to reconstruct the economy, creating a new social contract partly based around access to safe, inexpensive credit for married white men and their dependents. This continued after World War II as we grew the economy on consumer purchasing and mortgage finance—and the worthiness to access credit was racialized and politicized. You certainly weren’t going to get credit if you were an anarchist or a communist. And religion still held sway: In some places, if you didn’t express credible Protestant religious convictions, your credit report wasn’t going to be as good, because these highly localized community standards demanded it. The idea that a certain kind of people are worthy of credit is entirely a social construct based around an idealized vision of society. Those same people who got credit also got all the other benefits of living in postwar America. They owned the suburban houses and received the benefits of rising housing prices. Creditworthiness was bound up in a kind of civic religion and ideals about what American society is supposed to look like.
This is what a localized financial system produces: Men in your community—local bankers, retailers, credit-bureau executives—decide whether you get credit or not. They’re watching your behavior—not just whether you have a good job or your business is flourishing, but are you a member of an ethnic minority that they don’t like? Do you hold religious views that they don’t like? Are you cheating on your spouse? Do you drink too much? That’s maybe not going to be disclosed in the paperwork you submit for the bank loan, but it may affect the decisions they make about you. There were real advantages, for a lot of people, in getting away from that and moving toward a highly impersonal system.
Owen: My generation has grown up amid more and more conveniences offered by corporations that are increasingly powerful and less policed. Over the long term, the bankers’ bargain with Americans was that trade: more convenience for the customer, and more autonomy for the banks. Who do you think has benefited from that and who has suffered?
Vanatta: We have a more consistent ability to acquire high-quality goods and services, and that is perhaps for the better. Maybe the company that made jelly in your town actually made some pretty bad jelly, so you benefited by having a supermarket chain that sold the same name-brand jelly everyone else ate. But there were small jelly producers in other places that were doing a really good job, employing locals, and adding to regional culture, and they were erased. And then, once the big producers gained control, it was hard to re-create that organic, local variety.
Today we’re all buying the same products, and the corporations have outsized power. Having a uniform payment system where you can use the same Visa or Mastercard anywhere in the country makes it better to be a big corporation. They can negotiate and get a better deal from the banks. But it leads to further reinforcing monopolistic or homogeneous tendencies within the economy, and the small players are being squeezed out. Credit cards were initially meant to push back against monopolies. When consumers in small communities started going into the city and shopping at the big department stores, it hurt small businesses. One of the main arguments for creating local credit card systems was that it enabled small stores to compete with big department stores that offered consumer credit. So it’s ironic that eventually the big banks captured the credit card system and created this world where we all started using Visa and Mastercard as a result.
The economic ideal of free markets, promoted by Reagan and economists like Milton Friedman, also entailed using a credit card to buy whatever you want, because that’s your right as an American.
Owen: When lawmakers in the 1960s were trying to pass consumer-protection legislation, there were different views of how to regulate lending: Do we require disclosure of interest rates so that consumers can make informed choices and let the market regulate itself? Or do we limit interest rates and eliminate predatory rates? How did that tension play out?
Vanatta: One key component of the New Deal was for the government to take a strong role in structuring markets to keep them orderly and safe. This often took the form of price controls. In banking, the federal government set a limit on how much interest depositors could earn on a savings account, to prevent banks from competing with each other by paying higher and higher rates, because then they would have to charge higher rates on loans or find other, riskier, ways to remain profitable. States regulated the interest that lenders could charge on auto loans, mortgages, and installment lending. Each state did this differently, so the maximum mortgage rate in Utah was going to be different from that in New York. As part of this place-based social contract of finance, consumer interest rates were subject to constant renegotiation, depending on how national credit markets were faring at any given time.
When banks moved into the credit card market in a major way in the 1960s, the cards were not subject to these state-level interest-rate limits. As a new product they fell outside of the existing regulatory system. That made them appealing. So Paul Douglas, a long-serving Democratic senator from Illinois, argued for truth in lending: If we told consumers how much credit cost, they could make their choice based on the lowest rate available, and competition would drive down rates across the board. People who were less creditworthy might have to pay a higher rate, but they’d still have access to credit, and we could have an expansive market.
The other argument was to cap interest rates—to say that there’s a level above which interest rates are simply exploitative, and if the bank can’t risk giving less creditworthy borrowers a reasonable interest rate, then those people simply shouldn’t have credit cards. Consumer groups—led by affluent consumers—were pushing for interest-rate caps to protect low-cost credit for well-off borrowers, and they were willing to shrink the amount of credit available to those seen as less creditworthy. But those well-off consumers also wanted to know how much they were paying for that credit. And ultimately they got both. In 1968 the federal Truth in Lending Act required credit card firms to tell consumers how much they were charging. When the law went into effect, borrowers, who had seen their rates quoted as 1.5 percent, 2 percent per month, now saw they were paying 18, 20, 24 percent a year. This led the consumer groups and labor unions to successfully push for state-level regulation of credit card interest rates. By the early 1970s nearly all states regulated credit card rates.
Owen: Is there an alternate universe where the Fed or another government entity could have fine-tuned credit access?
Vanatta: There were serious efforts to do that. In the 1930s a guy named Marriner Eccles was chair of the Fed, and he began thinking about how to fine-tune bank lending. If the economy was overheating, he wanted the state and federal governments to be able to tell banks to make fewer auto loans or fewer mortgage loans. It became a fierce debate that Eccles ended up losing. But during World War II the federal government did limit the amount of available consumer credit as a way to keep spending and inflation in check. Manufacturing had moved from making consumer goods toward making weapons for the war effort. With fewer consumer goods available, prices were rising, and people were buying them on credit. Controls put a stop to that. As the war ended, policymakers argued for preserving those credit controls, but retailers and manufacturers argued strongly against it, and the US ultimately abandoned the idea, taking a very different direction than other developed economies. That choice is one that policymakers and members of Congress are still arguing about, because if you can’t adjust consumer-credit levels to shape the economy, then your only financial tool is moving the Fed interest rate up and down, which is a very blunt instrument.
There was also a serious debate in Congress, when banks were mailing millions of cards in the 1960s, about requiring the Federal Reserve to essentially decide who was worthy—creditworthy—to receive a credit card. The Fed strongly objected to that idea, and in the end it fizzled out.
Owen: In 1986, when he was a member of the House Banking Committee, Chuck Schumer of New York wrote an opinion piece for The Washington Post accompanied by a list of smaller banks with lower rates. He was upset that interest rates were not being constrained by the market and had grown exploitatively high. How did that happen?
Vanatta: Remember, the truth-in-lending system was based on an expectation that consumers, as informed market participants, would make the best credit choices. At that time, states were regulating credit card interest rates. The problem was that banks could mail credit cards across state lines. Take the First National Bank of Omaha, Nebraska. Its credit cards were subject to Nebraska state politics. But when it mailed cards to other states, which state’s interest-rate laws would apply: the laws in Nebraska, where the First National Bank of Omaha is located, or the laws where the consumers lived and used their cards? The banks wanted the laws where they were located to prevail, because it would have been too complicated to manage a regional or nationwide credit card system if you had to compute interest rates based on where the consumer lived or used their card. These systems were operating on 1970s computer equipment—giant mainframes that filled entire floors of bank buildings. I don’t think those machines could have managed a system with variable interest rates based on geographic locations.
Now, because organized consumers were such an active political movement in the 1970s, both Republicans and Democrats were trying to present themselves as pro-consumer. State legislators and state attorneys general felt strongly that if a consumer in Iowa used their First National Bank of Omaha credit card in Iowa, then Iowa law, not Nebraska law, should determine the interest rate. A long series of legal fights ended in the late 1970s with the Supreme Court’s Marquette decision, in which the court said it’s where the bank is located that matters. So the Nebraska bank can mail cards to Iowa or Minnesota and be certain that Nebraska law will govern those accounts. This was significant but not revolutionary. The Nebraska bank was still subject to the place-based social contract in Nebraska—its credit card rates were still regulated by someone.
All this changed because of Citibank. In the 1970s Citibank was already enormous, but it couldn’t build US branches outside of New York State. It did, however, have more than two hundred branch offices in countries across the globe. Citibank executives were very skilled at manipulating regulatory geography to find the most profitable way to construct transactions. In those other countries they were able to engage in businesses that they couldn’t engage in within the highly regulated US financial system. Citibank built a nationwide consumer-finance business in Australia; they engaged in investment banking in London and Tokyo. But by the 1970s international banking had become very competitive as large European and Japanese banks joined the market, and Citibank took another look at expanding within the US, where it saw a potentially huge opportunity.
Unlike other banks, Citibank saw credit cards as more than just a credit product. If they put Citibank cards in customers’ hands, they thought, then those customers might also open a deposit account or access other banking services through this card technology. The card could be the bank. Citi might not be able to expand across the country, but its cards could.
So in 1977 Citibank started mailing millions of preapproved applications. Not coincidentally, what had been called the “BankAmericard network” was changing its name to Visa. This allowed Citibank to capitalize on the confusion: BankAmericard customers knew they were supposed to get a new Visa card, so when they got a Visa card from Citibank, they assumed this was their new card and began using it. Citibank quickly went from having zero Visa cardholders to having four million of them. Initially this was very expensive for Citibank, which experienced massive fraud losses and had a real concern that it didn’t know its customers across the country. Local bankers were laughing because they thought Citibank would end up with a bunch of delinquent accounts. But, in the end, Citibank created a nationwide credit card business.
The financial system in the US had become very unstable by this period, with the Federal Reserve trying to control skyrocketing inflation mainly through higher interest rates. In 1979 President Jimmy Carter appointed Paul Volcker to be chair of the Fed, and Volcker raised market interest rates to stratospheric levels. This is important: Under the highly regulated postwar financial system, banks borrowed money from depositors at a fixed, low rate set by the Federal Reserve and then lent it out at a fixed, higher rate set by state interest-rate caps. The space in between those two rates was where banks made their money.
But Citibank, through its global networks, was borrowing money at variable rates, and when market interest rates went up, Citibank was suddenly paying more for the money it was borrowing than it could charge cardholders for the money it was lending. Every time a consumer used one of those four million new Visa cards, Citibank lost money. So the bank begged lawmakers in New York to raise the state’s very strict interest-rate limits. When the lawmakers wouldn’t budge, Citibank started looking to relocate its credit card operations to a state without any interest-rate restrictions. Missouri and South Dakota were the only two available options. As a farming state, South Dakota had really suffered through the 1970s. Its workers were the lowest paid in the nation, and there was a huge migration from the state underway, as people went looking for opportunities elsewhere. Citibank told South Dakota state lawmakers that it could bring high-paying, steady, nonpolluting jobs to the state—as long as the lawmakers passed legislation that would allow Citibank to do business there. The lawmakers did, and Citibank relocated its card operation to Sioux Falls.
Delaware saw an opportunity and passed almost identical legislation, including some extra tax breaks for other kinds of banking activities. Most of the banks in New York chose to relocate to Delaware instead, because it was still on the Amtrak line. Delaware is famously home to a great many corporations in the United States. Most of the S&P 500 is based there. It used this expertise to lure the big card issuers as well.
This development triggered a dramatic transformation. Before this, local stakeholders could shape credit card regulations through their state’s political process. Once Citibank relocated to South Dakota, however, every other bank could threaten to move to another state, changing a conversation about financial regulation into one about economic development and jobs. The place-based social contract fell apart, and it was no longer possible to regulate interest rates at the state level. Citibank immediately raised interest rates to 24 percent plus an annual fee, which became standard in the 1980s. The pro-market, neoliberal argument from that era was that getting rid of state regulations would allow the free market to push down credit card rates. But only the largest banks, charging the highest interest rates, could afford to mass-market their credit cards. So the most expensive credit cards pushed out the low-cost options. That’s why Chuck Schumer went to the trouble of circulating the list of low-cost cards.
This remains true today. The largest card issuers charge the highest interest. Yet there’s still a real skepticism of any form of government regulation of credit card rates. Because banks are so profitable, they are very successful at lobbying against reinstituting any kind of cap. Discussions about it come up perennially. George H.W. Bush talked about a nationwide usury limit. Senators Elizabeth Warren and Josh Hawley have floated the idea recently. But there has never been the political will to make it happen.
Owen: Toward the end of his term, Jimmy Carter was trying to unring the bell, to detox people from this easy-credit environment that had become ascendant in the seventies. How was Carter’s effort greeted, and what happened from there?
Vanatta: Before and during the Carter years, labor unions really pushed to control credit cards. To them, credit for homes and cars was good because both were often built by organized labor, but unions weren’t sure about credit for soft goods, for clothes, for going out to eat at restaurants. They wanted people to get their purchasing power from a paycheck, not from the bank. So the unions, still a big part of the Democratic coalition, were pushing for control, and this was all the more important in the context of 1970s inflation. If your grocery bill went up and your paycheck stayed the same, you could use credit cards to make up the difference.
Jimmy Carter, an evangelical Christian, was concerned that our huge economy was built on consumption: Big cars and suburban homes were massively energy intensive. His idea was that we couldn’t control inflation because we couldn’t control ourselves, and consumerism was just a symptom of a deeper crisis in American society. In March of 1980 he instituted credit controls that made it more expensive for lenders to issue new credit through cards. He saw this as a moral stance against consumerism and our own credit habits; consumers saw it as a call to action. For a brief moment households started cutting back on their spending at the same time that financial institutions were cutting back on lending. People cut up their cards and mailed them to the White House.
Then the economy tanked. We’d become so dependent on household borrowing that US GDP in the second quarter of 1980 declined at almost an 8 percent annual rate. If you’re the sitting president, there are a lot of things you want in an election year, but a tanking economy is not one of them. Because the policy made it more expensive to issue new credit, banks began to charge annual fees and blamed it on the Carter administration. At the presidential debate in October, Ronald Reagan famously asked, “Are you better off than you were four years ago? Is it easier for you to go and buy things in the stores than it was four years ago?” Reagan just blew Carter out of the water, and household borrowing accelerated.
The economic ideal of free markets, promoted by Reagan and economists like Milton Friedman, also entailed using a credit card to buy whatever you want, because that’s your right as an American. Another key person was Walter Wriston, the CEO of Citibank, who took out full-page ads in The New York Times arguing against credit controls and saying we shouldn’t pretend there was some kind of moral difference between using credit to buy a washing machine and using it to take your family out to dinner: The free market should allow us to do whatever we think is right for our families. Instead of worrying about the cycles of consumption and credit, we should embrace it.
Owen: The US is in astonishing debt as a country. There was a time when this was a hot political issue. It still shows up in debates about the debt ceiling and so on, but balancing the budget and reducing the federal deficit used to be much more central to the political conversation. President Trump is still paying lip service to establishing a trade balance through his tariffs, but that’s not addressing the highly leveraged financial situation of the country. And the Republicans, who historically rode this issue hard, have essentially abandoned fiscal responsibility as part of their platform. You mentioned that other countries regulate access to consumer credit differently than we do. Do you see any differences in how those countries have approached national debt and borrowing?
Vanatta: Before the first Trump administration I probably would have said that American households care about the national debt because it feels like something they can control, whereas they often have less control over their household debt; it’s very hard to organize politically around the issue of individual debt—not only credit cards but also things like student loans. We’ve built this economy based on household borrowing—or, at least, it’s a source of momentum for overall economic growth. We have—or had—a moral framework where being in debt is bad, but we need everyone to have a mortgage and a car payment. To some extent, we resolve that tension by ignoring debt at the household level. Since student debt became a real political issue, we can talk about it as a social and structural problem, but it’s still hard to say credit card debt is something we should address politically. Personal debt is seen as a personal problem; the national debt is a political issue in part because it’s something that we all have a stake in.
That’s what I would have said ten years ago. Then something happened: COVID was part of it—the amount of spending that had to take place to combat that crisis was unthinkable before it became necessary. Political polarization also probably plays a role. I totally agree with you that Republicans are debt hawks whenever Democrats are in power. Fun fact: The first time an American president ever used the phrase “credit card” was when Dwight Eisenhower was criticizing Democratic spending plans. Reagan did something very similar, criticizing congressional Democrats in the mid-1980s, saying something like They have your credit card in their pocket. Today, because the dollar is the global reserve currency, we’ve been able to run up a national debt that is not sustainable. There’s no guarantee this will always be the case. But debt has become less of a political issue, in part because Democratic constituencies aren’t really getting what they want from national spending, so they still want more. And because Republicans are getting what they want from national spending, they don’t want to cut it and are willing to let the debt slide. Polarization means no one is willing to give anything up and no one is willing to compromise. It’s hard to imagine how that debate gets reshaped anytime soon.
Part of what makes the US unique, at least in the recent past, is our ability to sell our debt globally and not face a large penalty for running it up. Most other countries have much stiffer constraints around how much debt they can accumulate. And they have different cultural values, with a greater emphasis on saving. The US savings rate has been well below that of most peer nations. This all comes back to the decision to build the US economy on household borrowing, to build it on ever-increasing piles of debt, and there hasn’t really been a moment when we’ve faced the collective consequences of that. There have been lots of individual consequences, to be sure, but even big crises, like 2008, have been framed as the consequence of bad individual behavior or bad bankers. The borrowing doesn’t stop.
Owen: There seems to be a parallel here to the idea of assessing creditworthiness. The US has had incomparable stature in the world community. It’s like if Don Draper from Mad Men goes on a bender and maxes out his credit cards, then goes to the bank on Monday morning and says, “I need more.” And because he meets the criteria and has status within the community, they give him more rope to hang himself with.
Vanatta: Power leads to more power. If you owe the bank $10,000, that’s your problem. If you owe the bank $10 million, that’s the bank’s problem. Affluent, privileged groups have always expected to have access to credit as part of the social contract. That’s the start of the credit card story: Small merchants had wealthy people coming into their stores expecting credit. But their business was selling consumer goods; what did they know about offering credit? The banks pressed this expectation harder: We’ll mass-mail these cards to the affluent households, and the store owners won’t have a choice but to start taking our card. Banks used the social capital of these consumers to push that product into the market. The US is not only the biggest market; it’s also geopolitically dominant. So there is just this continuous process of lenders giving us more and more rope, because we expect it, because we demand it. When does it end? When does Don Draper have one too many benders?
Part of what makes the US unique, at least in the recent past, is our ability to sell our debt globally and not face a large penalty for running it up.
Owen: In recent years, especially with interest rates so high, we’ve seen an emphasis on premium cards with, for example, an $800 annual fee. The credit card has evolved into a lifestyle product marketed to a certain class of consumers. The card companies are redirecting the spending power of their consumers toward a particular class of corporate partners. American Express’s purchase of airline points brings in billions of dollars a year for Delta. It’s almost like the card companies own these consumers.
Vanatta: I heard recently that airlines lose money transporting passengers, more or less break even transporting freight, and make all their profits from credit card points; their business is really generating points for the credit card industry. I’m not sure whether that’s true or not, but in the initial world of localized credit, the bank was just one relationship for you as a consumer. Your financial life was built around a network of relationships: with the department store, the auto dealer, the local credit bureau. All had certain kinds of information about you. What banks are trying to do is take all those relationships that you had and center them around the bank. Then it knows all of your transaction data. It can see where and when you’re spending. It controls which stores get access to you as a consumer, and to get access, those stores must participate in the bank’s network on the bank’s terms. The situation today, in which the credit card industry is concentrated in a few large banks and firms like American Express, is the same as the situation local bankers in the 1950s had within their community, but on a massive scale. These institutions are constantly sorting consumers into different categories and classes, offering them different kinds of products, and brokering access to them. Banks were the original platform businesses, and credit cards gave them a technological edge, deepening their reach into every aspect of the economy.
The most fundamental thing in our economy is money. It’s how we transfer value from one person to another, and the control of that process is now hyperconcentrated. Premium cards are just one aspect of that. We’re trying to re-create social class through the payment mechanisms that we use, and as people become more adept at earning or maximizing points, these systems continue to become more and more exclusive. Then we’re further motivated to spend in ways that the financial institutions want. They have enormous power to shape our lifestyle choices, our habits, the overall direction of the economy, and which businesses succeed or fail. Is it better to have a hyperlocal, socially entangled society, or one that’s perhaps less entangled in our experience of it, but where the big companies trade us convenience, fluidity, and freedom for what? For a total picture of our lives and the power to shape us in subtle and not-so-subtle ways? It feels like this hyperconcentration could be really dangerous. I think if you told American bankers in the 1920s that, in a hundred years, four financial institutions would control most consumer spending in the United States, they would ask, “What can we do to prevent that?”
