Payback Review
From Shakespeare's Hamlet, 1603:
LORD POLONIUS:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
I followed a Morris Berman recommendation and read an in-depth review of Magaret Atwood's Payback by John Gray. A preview excerpt:
Implicit in Payback is the notion that we may now be returning to older and simpler practices of thrift and saving, and there seems little doubt that Atwood would welcome such a shift. Yet it looks unlikely that these old-world virtues will be rewarded in the foreseeable future. In the US, Britain, and countries throughout much of the world, the drift of policy is to stimulate borrowing by reducing its cost to as close to zero as is practicable, while expanding debt-financed government spending on a large scale. At the same time central banks are moving toward policies of "quantitative easing"—buying government bonds and other assets in order to increase the supply of money and re-energize economic activity, so that society can in effect borrow itself out of debt.
A bit more:
Whether or not it succeeds, it [the recent government stimulus] involves a redistribution from savers to borrowers that does not square with traditional values regarding the payment of debt.
The entire review can be found here.
Beyond Payback
Unlike John Gray, I don't agree that government stimulus is the answer...
I find it interesting to think about how a non-credit system -- in a stable or contracting environment -- would be able to out-compete a credit system. A credit system takes a great deal of time and resources to keep afloat. By contrast, a non-credit system -- let's call it an equity system -- is relatively easy to administer.
By way of example, let's consider the economics of having access to a $200,000 house in a credit system vs. an equity system. In a credit system, the lessee does not build up equity. His payments allow the lessor to build up equity -- supposedly for taking risk. (The result is that the lessee does not have a stake in the system.) If the lessor has borrowed the entire amount with a 30 year term at 6% interest, he has to get $1200 per month in order to cover his mortgage payment. Again, note that the person who is indirectly making the payment is not building up equity.
In an equity system, all participants would have access to the assets at amortized cost. In this example, let's conservatively say that the asset life is 30 years. The equity payment would be $555 monthly (200k/30/12) and the amount would accrue to the person making the payment. It is the person making the payment that deserves the credit -- oops, I mean equity. (It should be noted that an equity system will require an entirely new vocabulary.)
Why would someone with a large amount on deposit in the equity bank agree not to receive interest? First of all, they have access to the assets at cost themselves. Not enough? How about the religious value that usury -- originally it meant charging any amount of interest -- is a sin. This is also consistent with a Second Tier* perspective that we are all one. It also is a much more secure way for savers to store wealth. As Gray mentions in the above excerpt, savers are punished in a hyper-inflationary environment. Not in an equity system, though.
Once we get off the credit merry-go-round, productive work will trump -- how ironic -- manipulation. Office space, the primary domain of manipulation, can be converted to residential space, classrooms, and greenhouses.
The concept is so simple it boggles the mind.
*This surge into the Second Tier involves a totally new dimension of thinking, a new conceptual order. The supreme issue is restoration of the world so that life may continue -- not just human life, but life itself. For the first time man is able to face existence in all its dimensions, grounded in a value system rooted truly in knowledge and cosmic reality instead of delusions brought on by animal and social needs. The mind is suddenly open for cognitive roaming over the entire human tapestry and up the evolutionary Spiral.
Don Beck & Graham Linscott, The Crucible: Forging South Africa's Future
More Payback - (From an earlier post)
An excerpt from "The Fourth Turning":
"There will be a payback for the Boomers' tendency to graze on a problem until they finally decide to focus fully, at which point their sudden discovery becomes as much the issue as the original problem. Sooner or later, the truth will dawn on old Boomers that the money simply won't be there to support their accustomed consumption habits in old age. Neither they nor their nation will have saved enough." [p.283]
Posted by: Matt | July 27, 2009 at 09:17 AM