Sunday, June 10, 2012

Payment Plans

The longer I've pondered it, the more firmly I've concluded that the principal economic ailment of American society is the installment plan.

Shocked? I shouldn't wonder. What fraction of your house and car do you own?

Grab a fresh cup of coffee and get comfy. There's a lot to talk about this morning.

***

If you were one of the regular readers of Eternity Road of loving memory, you might remember my friend Duyen, who was a contributor there for a little while. Duyen is the most remarkable person I've ever known. She's a true genius, a person of great moral courage, a helpful friend, and a perfect citizen. She's proved all of that repeatedly, just by confronting the many daunting challenges before her and wrestling them into submission. Yet even with all that I've learned about her over the twenty-plus years we've known one another, she can still surprise me with an unexpected bit of insight or a veering analysis that eluded me completely.

When last we spoke, I was in exceedingly good spirits for a reason many Gentle Readers would find equally pleasing: I had at long last paid off my mortgage. Three decades spent carrying a mortgage can make it seem eternal, one of the facts of life from which there's no escape. But as with many other burdens, a sufficient degree of perseverance can bring it to an end. ("And there was much rejoicing.")

When I told Duyen, she congratulated me, of course, but there was an undertone to her words that invited a longer discussion. So I probed for it:

DK: I know Americans see mortgages as natural, but after my experience in Queens I'll never head into that mess again.
FWP: Hm? Why not?
DK: Come on, Flashy. After thirty years of wearing that ball and chain, do you really think it was a good thing?
FWP: How else could I have afforded my home?
DK: Have you ever added up how much you paid for it?
FWP: Several times, dear.
DK: Did you include property taxes, maintenance, upkeep, care of your grounds, all that?
FWP: No.
DK: But I'll bet it still came to several times the nominal purchase price.
FWP: Well, yes. But the alternative was to rent, and my wife was absolutely set on having this place.
DK: She left you three years later, didn't she? Pardon me for saying so, but that doesn't make it sound like a good investment.

As usual, my diminutive Vietnamese-American sweetie was dead on target. I simply didn't want to admit it. I've never wanted to admit it.

High intelligence is a wonderful tool. I must remember to use it more often in the years I have left.

***

Among the ornaments of the Blogosphere, I particularly prize Charles Hill of Dustbury:

"What do we want?" began the Sixties chant. It was followed by naming That Which Is Wanted, and then "When do we want it?" Invariably, the answer was Now. (It took four decades and change to subvert that premise properly: this was the result.) One of the stereotypes of the Baby Boomer generation, apart from their being involved in Sixties chants, is that they have absolutely no concept of delayed gratification: they want it Now, and by Now, they mean it should have been delivered already, and why are you even asking about this? As with most stereotypes, there's a kernel of truth underneath several layers of horsepuckey: we concede that some things are timeless, but for everything else, there's MasterCard.

I need hardly point out that strict adherence to this policy has put the nation nearly sixteen trillion dollars in debt, with many more trillions promised as "entitlements" somewhere down the pike. And I would be remiss if I didn't point out that my own use of this dubious technique has played hell with my own cash flow, though I have taken steps to put my financial house in order, something Washington isn't about to do if there's any possible way to avoid it.

Hard sense with just a drop of jaundice: exactly what I've come to expect from Charles, whose emissions over the decade I've followed him have always exhibited both, in precisely the right proportion. The natural consequence of the inability to delay the gratification of one's desires is the adoption of a loot-the-future mentality: the installment plan. "Buy Now, Pay Later!" "No Money Down!" "Easy Terms!" As Americans have slipped away from the frugal ways of our more distant forebears, we've taken to living an ever greater fraction of our lives on credit. The attractions of having what we want immediately while deferring its cost to the remote future have overwhelmed our good sense. We forgot about the dark side of compound interest. ("The eighth wonder of the world" -- Baron Philippe de Rothschild)

The syndrome is pandemic. Installment plans abound. Loans are easy to get; why, the banks are practically forcing them on people. Retailers are doing it too. Look how low the interest rates have fallen! Anyway, you have lots of credit cards, don't you? It's become a rare thing to hear someone say, firmly and sincerely, "I can't afford that." (In one of the supreme ironies of our time, the speaker is usually quite wealthy.)

The installment-plan orientation causes us to overlook the true cost of our gratifications. Worse, it erodes, and eventually destroys, budgetary discipline. As discipline is a unitary mindset in most persons, other personal disciplines tend to erode right along with it.

***

The United States government, and a goodly number of the state and municipal governments, have also been living on credit. A significant fraction of contemporary political controversy arises from that fact in isolation from all else. But wait: there's more! The indulgences made possible by government borrowing have conditioned special interests to believe that any demand for government expenditure can be met immediately. Of course, this means that the full costs will land upon our posterity, but who gives a damn about them?

I can't be certain which is the chicken and which is the egg; possibly no one can. But it doesn't matter nearly as much as the synergy between governmental profligacy and the individualized version we've been seduced into embracing. Why can't we have it now? What do you mean, there's no money for it? There always was before!

Add the power of envy, so ably stoked by today's practitioners of political division, and the tendency of politicians to give in to such demands becomes easy to understand. They won't be paying the bills, and they have elections to win.

Our minor children and unborn grandchildren don't get to vote on today's decisions. It's easy to ignore what they might say about them, were they able to express their opinions.

If there's a silver lining to today's federal debt and entitlements crises, it's that the consequences of our profligacy to date have made it impossible for many Americans to accept that the practices of the past can continue indefinitely into the future. The future looms all too near.

***

A. E. Van Vogt, in his "Weapon Shops" stories, wrote that "People always get the government they want." That might not be strictly true. However, I think it's defensible to say that a people will reliably get the government it deserves...even if it has to overthrow a decent, frugal government to do so. Ask the Argentineans.

Governmental financial prudence cannot be attained by a people who fail to practice personal financial prudence. The correlation isn't accidental; it stems from the most powerful, most automatic of our impulses. Until we become accustomed to telling ourselves that we must wait until we can pay cash for what we want, Washington will continue to borrow against the earnings of notional future taxpayers. Since the lender of last resort is the Federal Reserve Bank, which creates new money with which to purchase Treasury bills, this will weaken the dollar ever closer to the wastepaper point.

I don't see us righting ourselves in what remains of my life, and not for the first time, I'm grateful that that's not many more years. But I fear for my stepdaughters and their as-yet-unconceived children. If we don't swiftly correct our spendthrift ways and learn to eschew the payment plans -- individual and governmental -- this country and its people will have a very bleak future. Our financial bondage will lock us into both personal and political fetters; our bills will come due both in dollars and in lost liberty.

Thoughts?

6 comments:

  1. My dear mother fed and encouraged reading in her small home filled with eight children. She was forever buying our clothes from the thrift store, but buying our books from every mail-order place imaginable.

    So it was delightful when a Life Magazine compilation of the first 50 years of the 1900's arrived, large and beautifully filled with photos.

    I was intrigued with The Depression pics, of course. But the accompanying essay began with the idea that, "The retailers helped the 20's roar with small, weekly payments," and it was drawing the same conclusion back then. (Which it would never do today.)

    Quite a lesson to learn when one is only ten years old.

    My Dad explained that credit was a perfect servant and a lousy master.

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  2. Let us not forget that, even after having retired your contract with the financial agency you obtained your mortgage from, you still do not own your home. You merely rent it from the government.

    Stop paying your taxes and they will take it from you. Plow your pasture that the government has deemed "wetlands", and you will lose your land. Grow an illicit agricultural product upon it, and it will be forfeited, possibly along with most of your other assets.

    I may well be missing something, but the only real benefits I see to purchasing a home (as I have several times, retiring several mortgages fairly quickly) is the savings of the many thousands of dollars of interest you will pay over a 20-30 year mortgage (certainly not to be sneered at), and the fact that it becomes more difficult to be forced to move at the whim of the person from whom you would otherwise be renting.

    I do use credit cards for convenience, but pay them in full every month. The $400-500 I gain each year from doing so is a nice side effect.

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  3. I wouldn't be too hard on yourself. You know as well as anyone that debt -- and especially mortgage debt -- is heavily subsidized by inflating money supplies. Duyen may lament the actual number crunching, but you are likely considerably wealthier in real terms today for having paid a mortgage vs paying cash. The dollars expressing the purchase price and the total dollars paid are not even remotely the same dollars, and not just because of inflation.

    That's the real problem, (as again, I'm sure you already know...) which of course stems from the practice of money-as-contract vs money-as-commodity (and money-as-commodity-of-fixed-supply, which would be even better). I would note that my wife and I had trouble buying a house because we were attempting to pay cash and were being outbid by people with no money at all. You don't get to create the world or its rules, and you have to play the hand you're dealt. You do the best you can, and that's just the way it is.

    Great post, though, especially as relates to delayed gratification, i.e. self-control.

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  4. Matt just showed me this piece. When he prays, one of the things he thanks God for is that I ran into you in Hong Kong, and that you were too squeamish to get it on with a girl so much younger than you!

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  5. Fetiche,

    And the US is so much the richer for it.

    I'm continually amazed at the quality of people who escaped from Vietnam on a boat and a prayer.

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  6. I especially appreciate your observation that the rare individual who indicates that he "can't afford" something is often wealthy. In my view, it is because of this frugal mindset that a wealthy individual is able to become (and remain) wealthy. Without this mindset, an individual will spend all of the money at his disposal such that no wealth can be amassed (regardless of the amount of his earnings) or maintained (in the case of a financial windfall). Just ask MC Hammer.

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