When Government Spending Prevents Personal Debt

It’s a pretty obvious phenomenon: when federal spending is cut, personal debt rises (or at least wealth declines). This will show up in credit scores (boldface mine):

Today, we look at a big, fat map of credit scores reproduced from a recent economics paper. And while the map suggests any number of tantalizing questions, we are most intrigued by that big band of credit-score calamity that stretches across the American South.

Almost every corner of America’s most populous region — every race, every income bracket — appears to have low credit scores. But why?

…But in this case, demography is no match for geography. Even some of the South’s biggest, most dynamic cities — think Atlanta or Dallas — have the same below-average credit scores as their more rural Southern neighbors. Within every income bracket, the typical Southerner has a lower credit score than someone who lives in the Northeast, Midwest or West.

With the obvious factors ruled out, we were stumped. Until we called economist Breno Braga at the Urban Institute, a nonprofit, nonpartisan D.C. think tank. Braga, who studies how credit-ratings data quietly determines so much about our lives, took about 16 seconds to diagnose the problem.

The reason why credit scores are so low in the South has gotta be connected to medical debt, because that’s the most common type of unpaid bill that people have,” Braga said. And the South, he said, easily has the highest levels of medical debt in the country.

Of the 100 counties with the highest share of adults struggling to pay their medical debt, 92 are in the South, and the other eight are in neighboring Oklahoma and Missouri, according to credit data from the Urban Institute. (On the other side, 82 of the 100 counties with the least pervasive medical-debt problems are in the Midwest, with 45 in Minnesota alone.)

And sure enough, when you look at areas across the nation where adults are struggling to pay down medical debt, they have similar credit scores.

..A clue to the broader answer comes from a recent analysis in the Journal of the American Medical Association, which found that medical debt “became more concentrated in lower-income communities in states that did not expand Medicaid” after key provisions of the Affordable Care Act took effect in 2014

In states that immediately expanded Medicaid, medical debt was slashed nearly in half between 2013 and 2020. In states that didn’t expand Medicaid, medical debt fell just 10 percent, the JAMA team found. And in low-income communities in those states, debt levels actually rose.

If I could enact a domestic policy wish list, one item would be to eliminate states’ roles in programs like Medicaid (and a whole bunch of other programs too), and make them entirely funded by the federal government, with no options for states to fuck around. Because when you remove federal spending, you impoverish households and put them in debt. A competent Democratic Party would be bashing Republicans over this, including Ron ‘Meatball’ DeSantis.

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