Friday, August 24, 2007

There but for fortune

At the Nation, Barbara Ehrenreich has a short article ('Smashing Capitalism') whose satire falls a bit flat but which makes a good overall point and links to a couple of things worth reading.

Taking her cue from the recent shudder that went through the world's stock markets due partly to the unfolding 'sub-prime' mortgage crisis in the US as well as from disappointing sales figures at Wal-Mart, Ehrenreich comments:

Somewhere in the Hamptons a high-roller is cursing his cleaning lady and shaking his fists at the lawn guys. The American poor, who are usually tactful enough to remain invisible to the multi-millionaire class, suddenly leaped onto the scene and started smashing the global financial system. Incredibly enough, this may be the first case in history in which the downtrodden manage to bring down an unfair economic system without going to the trouble of a revolution.

Even meant satirically, I think Ehrenreich takes a good point rather too far: it seems to me that the recent market turbulence--as far as I can understand it--is rather more complex.

(Not to mention that the system is nowhere near being smashed: Ehrenreich knows this, which makes her somewhat flamboyant rhetoric all the more silly. I say this as an admirer of some of her work, such as her book Nickel and Dimed: On (Not) Getting By in America.)

But one of her conclusions is on target...

But in the long term, a system that depends on extracting every last cent from the poor cannot hope for a healthy prognosis.

...particularly since said system is extracting more than that last cent.

On that point, far more striking than Ehrenreich's sledgehammer rhetoric (in this instance) is an article to which she links from the radical lefties over at Business Week: 'The Poverty Business'.

The main topic can be summed up thusly:

In recent years, a range of businesses have made financing more readily available to even the riskiest of borrowers. Greater access to credit has put cars, computers, credit cards, and even homes within reach for many more of the working poor. But this remaking of the marketplace for low-income consumers has a dark side: Innovative and zealous firms have lured unsophisticated shoppers by the hundreds of thousands into a thicket of debt from which many never emerge.

Federal Reserve data show that in relative terms, that debt is getting more expensive. In 1989 households earning $30,000 or less a year paid an average annual interest rate on auto loans that was 16.8% higher than what households earning more than $90,000 a year paid. By 2004 the discrepancy had soared to 56.1%. Roughly the same thing happened with mortgage loans: a leap from a 6.4% gap to one of 25.5%. "It's not only that the poor are paying more; the poor are paying a lot more," says Sheila C. Bair, chairman of the Federal Deposit Insurance Corp.

Along with many interesting and useful facts like that, the article profiles the human side of this situation, presenting stories of poor people who--in one way or another--have found themselves trapped in poverty and victimised by the purveyors of expensive--but oh-so-tempting--credit.

I found myself torn by conflicting emotions when reading some of these stories: certainly there was anger at the greed of companies whose business plans seem to consist entirely of taking advantage of people in the most outrageous ways. I was moved by the plight of individuals who don't sound at all that much different than people I have known.

There was also a certain amount of frustration with some individuals themselves, like 'Luisa' who owes creditors $169,585 and says: "I don't read things. I just sign them."

Comments like this send a certain part of my political brain--the one that is convinced concepts such as 'individual responsibility' should not simply be abandoned to the right-wing--into fits of screaming incomprehension.

However, there are many different ways of being working-poor, and, as is clear, if, say, you need a car to get a job (not at all that rare in the US) and you lack ready cash and good credit, your choices are limited and buying the used Saturn from the local bloodsuckers at 25% interest starts to look like an opportunity rather than a disaster.

This is even more the case when the extent of economic illiteracy (or maybe just basic innumeracy) is taken into account. Niall Ferguson is a condescending bastard, but he points to a real problem:

In 2006, the British Financial Services Authority carried out a survey of public financial literacy. It revealed that one person in five had no idea what effect an inflation rate of 5 per cent and an interest rate of 3 per cent would have on the purchasing power of their savings. One in 10 did not know which was a better discount for a television originally priced at £250: £30 or 10 per cent.
It makes you want to weep, doesn't it?

Of course, it has always been this way, and some people have always made bad choices. (And, though I can manage rather better than the people Ferguson cites, please do not ask me to explain the finer points of my mortgage to you...). Human psychology with regard to economic behaviour is a complex and often irrational thing.

But what does seem to be new is the fact that there is an entire industry devoted to taking advantage of those weaknesses in grand style. The point seems not to provide credit to assist the borrower in succeeding, but to count on the fact that they will fail.

Hence, the 'NINJA' loan for those with 'No Income, No Job and No Assets'.

And I think there is another antidote to the open contempt for the working poor that seems to roll so easily off the tongue of many commentators to the articles at the Nation, the Telegraph and Business Week: the 'There but for fortune' principle.

I have been very fortunate in life, but having worked (and borrowed) my own way through my (extended) education--and having known enough people who were living lives on the margins or who faced setbacks that were not of their own making--it is not easy to look down upon people who, for whatever reason, have found themselves in trouble.

And, unless you come from an extraordinarily sheltered background (in which case, you have nothing useful to add anyway), I imagine you'd have to admit the same.

Which is an excuse to offer this song, which I've always liked very much.

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