Ezy cum ezy go
Jun. 20th, 2008 11:32 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksGot home from work. Cheque from Lewisham Council for £210.85. Excellent. Notice that there is a message on my phone. Message states that a policeman has noticed that my car has been broken into and rear window is smashed. Need car to drive to Worcester within three hours. Phone Ancaster at Penge. Luckily can get window repaired. Cost £151. So it goes.
I'm never sure how the insurance works on this. I suspect that this kind of stuff 'theoretically' does not impact your no-claims bonus. In practice, I doubt that it's in my interest to make a claim -- especially not if I plan to buy a car in a higher insurance group.
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Returning to the matter of debt and inflation, I saw that Robert Peston of the Beeb, who might not be up to the standards of Paul Authers or the superb Philip Coggan, does usually write some sense, had written a piece. I therefore turned to his article on 'debt and inflation' with eager anticipation. It was then that things became weird, because Peston spotted that there were people who gained from inflation, but then seemed to get caught up in a moral/practical paradox that he didn't notice. Here's the key paragraph:
The key phrases here are "too much" and "the full and proper consequences of your imprudence".
Peston sets out his moral stall in another paragraph.
Peston's logic bypass is a result of his confusing capitalism with what is 'right and proper'. For example, in his first paragraph, how much is "too much"? Presumably, it's an amount that you can't hope to repay by your own hard efforts. But if I think inflation is going to go through the roof, and someone offers me a loan of a million quid, at a fixed rate of interest for 10 years, am I 'imprudent' to borrow that money? Surely not. It's an easy way to make a buck in the capitalist system. To get on a moral high horse about it is a bit silly when you are a business editor. Businesses make moves like this all the time, and no-one calls it imprudent. If it works, it's called a sharp and wily anticipation of the direction of the economy. You can't apply different moral principles to individuals from those which you apply to businessmen.
Curiously, Peston spots what I've been arguing - that "the over-borrowed are a sizeable minority of the electorate" and that "as growing numbers of households and businesses have difficulties meeting their financial obligations, the pressures on them for an allegedly painless and quick inflationary fix will intensify". However, his reasons for wanting to control inflation appear to be that it isn't "fair" on the thrifty and that it rewards the spendthrifts.
Well, life isn't fair. Business editors, in particular, should have got to know that long ago. I saw how inflation was likely to go, so I geared up on fixed debt and remained liquid. As Peston observes, if we get into a situation where inflation helps enough people (let's ignore that 'benefits no-one' silliness from yesterday...) then inflation is what you are going to get. Claiming that it isn't 'fair' on the thrifty just won't wash as a reason for it not happening, let alone as an argument that will make people change their minds.
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I'm never sure how the insurance works on this. I suspect that this kind of stuff 'theoretically' does not impact your no-claims bonus. In practice, I doubt that it's in my interest to make a claim -- especially not if I plan to buy a car in a higher insurance group.
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Returning to the matter of debt and inflation, I saw that Robert Peston of the Beeb, who might not be up to the standards of Paul Authers or the superb Philip Coggan, does usually write some sense, had written a piece. I therefore turned to his article on 'debt and inflation' with eager anticipation. It was then that things became weird, because Peston spotted that there were people who gained from inflation, but then seemed to get caught up in a moral/practical paradox that he didn't notice. Here's the key paragraph:
However, if you have borrowed too much, what you want is the value of money to decline. Serious inflation is your best hope of avoiding the full and proper consequences of your imprudence.
The key phrases here are "too much" and "the full and proper consequences of your imprudence".
Peston sets out his moral stall in another paragraph.
Inflation is -- of course -- profoundly unfair to the thrifty...
Peston's logic bypass is a result of his confusing capitalism with what is 'right and proper'. For example, in his first paragraph, how much is "too much"? Presumably, it's an amount that you can't hope to repay by your own hard efforts. But if I think inflation is going to go through the roof, and someone offers me a loan of a million quid, at a fixed rate of interest for 10 years, am I 'imprudent' to borrow that money? Surely not. It's an easy way to make a buck in the capitalist system. To get on a moral high horse about it is a bit silly when you are a business editor. Businesses make moves like this all the time, and no-one calls it imprudent. If it works, it's called a sharp and wily anticipation of the direction of the economy. You can't apply different moral principles to individuals from those which you apply to businessmen.
Curiously, Peston spots what I've been arguing - that "the over-borrowed are a sizeable minority of the electorate" and that "as growing numbers of households and businesses have difficulties meeting their financial obligations, the pressures on them for an allegedly painless and quick inflationary fix will intensify". However, his reasons for wanting to control inflation appear to be that it isn't "fair" on the thrifty and that it rewards the spendthrifts.
Well, life isn't fair. Business editors, in particular, should have got to know that long ago. I saw how inflation was likely to go, so I geared up on fixed debt and remained liquid. As Peston observes, if we get into a situation where inflation helps enough people (let's ignore that 'benefits no-one' silliness from yesterday...) then inflation is what you are going to get. Claiming that it isn't 'fair' on the thrifty just won't wash as a reason for it not happening, let alone as an argument that will make people change their minds.
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no subject
Date: 2008-06-20 02:50 pm (UTC)Borrowing (and the effects of inflation) lie pretty much at the centre of business, and always have done. Let's face it, the insurance business wouldn't exist without vast amounts of borrowing by the East India Company and others.
Borrowing (and the effects of inflation) seems to have far less of a purchase on the thoughts of econmic pundits when it comes to individuals. Borrowing on an individual basis, multiplied up by a fair proportion of the population, is an extremely recent thing.
Borrowing by masses of individuals is fairly transparent. Borrowing by companies is not transparent at all -- right up to the point where they turn tits-up and have to admit to all the special purpose viehicles, covenants, etc etc that kept them afloat.
I think that both the "too much" and the "full and proper consequences" statements are evidence that the Protestant Work Ethic lingers on, in many people's minds, on the individual level. Clearly its time has long since passed on the corporate level.
In general, inflation is good for individuals, and bad for businesses. Assigning the same moral values to both sets of participants is clearly schizoid.
(I'd also argue that this was one of the most entertaining psychoses of the Thatcher/Reagan era; on the assumption that anything about that era was remotely entertaining.)
What's good for the goose
Date: 2008-06-20 03:23 pm (UTC)As you say, Thatcher's belief that what worked for individual households must necessarily work for whole economies -- straight out of pre-Keynesian economics, that one (remember 'the veil of money' theory in classical economics?) would have been funny if it had't had such tragic consequences.
The sad thing about it is, much of 'Thatcher's legacy' has been good for the UK (greater mobility of labour and capital, less state control of enterprises) but in general those achievements were made by mistake.
PJ
Re: What's good for the goose
Date: 2008-06-20 04:06 pm (UTC)It would have happened anyway.
What's sad is that so few people understand the law of unintended consequences.
What's even more sad is that abosultely nobody thinks in terms of Opportunity Cost.
Go on. I dare you.
Re: What's good for the goose
Date: 2008-06-20 04:11 pm (UTC)Let's go with crusty ole C&P, shall we?
It's not sad.
It would have happened anyway.
What's sad is that so few people understand the law of unintended consequences.
What's even more sad is that abosultely nobody thinks in terms of Opportunity Cost.
Go on. I dare you.
Generalisations
Date: 2008-06-20 08:36 pm (UTC)I think the 'too much' line is reflective of jealousy rather than anything else. I don't think people mind you taking a shrewd line on borrowing and inflation and profiting as a result (although I don't think you'll find this is something Sharia law is very keen on). What he's bitching about is people who undertake reckless borrowing (can't afford to repay it really, in a sub-prime kind of way) and who with no skill, planning or forethought are rescued by a burst of inflation. Same actions, same result but one is motivated by skill and one by blind chance.
I have clients' whose borrowing is approaching the criminally insane. There's one who originally borrowed £350K to buy a £400K house. They've got income of around £35K and a broker who's good at telling porkies. They've been spending around £100K+ pa with £35K income for many years and this has been funded by them trading up the mortgage as the value of the house rose. They now owe £1.8M on a house which was valued a year ago at £2M. That's borrowing too much.