It's Not The Economy, Stupid, It's You

There is universal agreement that the US economy is currently in a mess. Calling it a recession or not is merely a matter of semantics. The American people are blaming it on the government, the war in Iraq and, in particular, the greedy banks who were so generous in handing out sub-prime mortgages at enticing lending rates, even to families who really did not have the financial capacity to keep up the interest payments. And now they are foreclosing and driving innocent families out into the street – the cruel bastards. There is merit in this argument, of course, but it is not the whole picture. The American public would be well served if they carried out a little introspection.

I should have prefaced this article by admitting that my knowledge of high finance would fill up a page – barely. My consolation is that it puts me in the same league as millions of ordinary families – not just in the US, but all over the world. The difference lies in attitudes towards money. In India, for example, the majority of the population who want the good things in life would probably save up before they feel brave enough to get it. America, however, is the land of instant gratification.

Consider a typical young married couple. They have recently got married and want a good house for themselves and the children to come – and they want it now. Unless they are qualified professionals, probably only the husband is working; or both are in low end jobs. According to their income, they can only afford community housing, or a studio apartment. But why should they settle for that? This is America, after all, and they are entitled to the American dream. And it is so achievable. Banks are eager to advance loans; and if the loan is not big enough for a "nice" house, they don’t have to limit themselves to a single mortgage. As for paying back the loan, they will worry about it when the time comes. If push comes to shove, they can always max out their credit cards.

Credit cards, indeed, seem to be one of the most easily available commodities in the US. I’ve seen pop-up ads on the web, where credit card companies seem almost desperate to give you a card. It is immaterial if your credit rating is through the floor. I recall an episode on one of those US law serials (Boston Legal?), where the defense attorney accused the credit card companies of enticing people to purchase their cards, even though they were aware that the recipients would almost certainly default on the monthly payments. This gave them an excuse to increase interest rates until they reached exorbitant levels.

To an outsider like me, the spending habits of ordinary Americans have long been a source of wonder. Take the price of gasoline, for instance. It is about to touch four dollars a gallon. Americans are moaning and grumbling, but how many have seriously considered trading in that gas-guzzling SUV for a compact model? Why is there this compulsion to take the car every time you step out of the house? Why do the younger kids have to be dropped and picked up from swimming class and the library, even though they may be only a couple of miles distant? Why can’t they walk, or ride a bicycle? Ditto for the older kids. Why is it absolutely essential to have your own car once you turn sixteen? Why can’t you walk to the mall instead of driving there? It wouldn’t be so humiliating if everyone did it.

These suggestions would probably be received with horror and amazement by many Americans. A smaller car is a ridiculous idea. We need a big car for those family outings to Six Flags; and the summer vacation at Myrtle Beach. Do I expect them to take a bus, or the train, for God’s sake? How naïve can I get?

Yes, credit rules in America. It is no longer a luxury, but a way of life. Heck, there are no luxuries any more. You see something you like; you flash your credit card and bring it home. And when one credit card maxes out, you simply switch to another one. That is how the system works. Don’t worry your head about paying back. Like Annie said, the sun will come out tomorrow – maybe.

George Bush’s solution to ease the financial suffering of his fellow Americans is to send them more money. Makes sense, I suppose. Only, I’m not sure how many beneficiaries of this government largesse will use that windfall to reduce some of their debt. My guess is that most will go out and spend it – and get into even more debt. Hooray for the free market economy.