But consider this thought from historian Niall Ferguson in his book "The Ascent of Money" (which, by the way, was written before the worst of the financial crisis hit):
"Politicians, central bankers and businessmen regularly lament the extent of public ignorance about money, and with good reason. A society that expects most individuals to take responsibility for the management of their own expenditure and income after tax, that expects most adults to own their own homes and that leaves it to the individual to determine how much to save for retirement and whether or not to take out health insurance, is surely storing up trouble for the future by leaving its citizens so ill-equipped to make wise financial decisions."The financial institutions who duped unassuming home buyers into taking on mortgages they couldn't afford and the regulators who failed to identify the risks of doing so are certainly to share the blame for the recent economic turmoil. But a major missing piece in the recent regulatory reform bill, and in the general conversation about righting the economy, is an effort to improve basic financial and economics education - something that should be part of every primary high school and college curriculum. For most Americans, this education once came in the home, with parents teaching children about saving money, living within one's means, earning before spending.
But the expansion of credit over the last two generations has complicated this message: Spend, so long as you can pay the interest. Living beyond one's means is now possible - indeed a miracle of credit - but has created a sort of financial overconfidence in society.
In the principal-agent failure that took place in the recent crisis, the "principals" (bankers, etc.) with access and financial sophistication far above that of the average person were able to manipulate finance to make enormous profits, all the while knowingly risking stability of the financial system that enabled such tactics.
The new reforms notwithstanding, it is difficult to assume these mistakes won't happen again when the "agents" in society, ranging from local police pensions funds to average Joes, continue to be ignorant of the rapidly evolving world of finance.
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1 comment:
A really interesting post, as ever.
I'd ask one question though. Is it not the case that in recent years (perhaps the last two decades), real income (adjusted for inflation) has stagnated if not regressed? If so, this could explain part of the shift from a society that lives within its means to one that lives off credit - as income falls, credit is the only option many people have to afford luxuries and sometimes even amenities.
And why have wages not kept up with GDP growth or inflation? In my simplistic, I'm-not-an-economist-but-I've-read-a-few-books kinda thinking, it's because corporate management hold so much sway over the profit:wages ratio - as well as the effect of mass migration and globalisation - that workers' wages get suppressed.
The Left's traditional answer to the suppression of wages is to Unionise - but increasingly I see this as being somewhat ineffective, especially given that it's post-hoc - wage settlements are imposed upon workers, then opposed by Unions, both of whom have their vested interests at heart.
So, in a nutshell, the answer is greater workplace democracy - greater involvement of workers in setting their (and the management's) remuneration, having a greater say in how dividends are paid and how much turnover is re-invested and how of turnover much becomes return to capital. In other words, a shift towards a more co-operative model of business - but then coming from a guy that grew up in Manchester that's hardly surprising...!
I am not a Marxist [just to make that clear :-)], but a salient feature of the US/UK economy is the exaggerated profits:wage ratio - just look at banks in the UK - which to me explains the fact that we're all addicted to debt as does the lack of edykayshun - although the latter cannot be dismissed as you point out...!
Anyway, enough rambling from me...!
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