Saturday, 26th January 2008

The dangers of a lifestyle culture

Peter Hoskin 4:40pm

On the day that the Treasury Select Committee skewered the FSA for its role in the Northern Rock crisis, the Telegraph features a thought-provoking article by Charles Moore - suggesting that consumers join the financial regulators in taking a long, hard look in the proverbial mirror.

Moore places Northern Rock's downfall in a societal and historical context; characterising it as a symptom of lax Western attitudes towards borrowing and spending. There's no totally innocent party here - companies peddle a "lifestyle"; consumers buy into it; and banks fund them. As Moore puts it:

"The consumer dream is summed up in that advertisement for the cosmetic company - 'Because you're worth it.'
For the banks, the task has become to make it seem that you are, literally, worth it. They have tried to unlock the financial potential lurking in unlikely places. Rising house prices, in particular, have allowed them to persuade people that their home is like a cash machine. In these circumstances, why save? Indeed, a failure to borrow has become a lifestyle mistake, a terribly ageing thing, like living in California and not having plastic surgery."

The article's greatest insight is that politicians - and the general public - may find treating this modern malaise difficult, but treat it they must:

"The danger is that no politician can tell the truth. The truth is that we - both individuals and the Government - are borrowing and spending too much. We need a recession, or something very close to it, to correct our collective relationship with reality. Only then will we get recovery.
But if the Conservatives say it, they will be seen once more as the sour-puss party they have tried so hard to avoid being. And if Mr Brown says it, he will be admitting his own, now massive error in overspending in boom times so that he has a big deficit when his revenues start to fall. He will court electoral annihilation.
And yet, if we in the West continue as we are, we will end up being owned by China, India and the 'sovereign wealth funds'. And our sovereign wealth, which has dominated the entire history of industrial civilisation, will gradually disappear."

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mark

January 26th, 2008 5:52pm Report this comment

and guess what message having a student loan based system gives people? And when are we going to realise perpetual growth is not achievable?

Nicholas Millman

January 26th, 2008 7:08pm Report this comment

I blame television which is irresponsible, especially the BBC. They bleat that they are just reflecting real issues but life imitates art. They create no suitable role models and what role models do exist get younger and behave ever more badly. Plotting the age and character of the actors who have played Dr Who tells the story of the BBC in this regard. Their message is essentially focussed on the negative aspects of life. Then there is advertising and yoof kultur. It quite shocks me how childrens television programmes are now populated by screeching, superficial, self-indulgent wannabe celeb presenters. Not a role model amongst them. On second thoughts I don't blame TV - I blame the BBC entirely. No wonder all this creates consumer escapism. Noggin the Nog where are you?

Rory Sutherland

January 26th, 2008 10:25pm Report this comment

There is another reason why the government should avoid disparaging debt (and indeed should similarly avoid sanctifying saving). Quite simply the decision whether or not to borrow belongs between the individual borrower and creditor alone. To pass judgment without knowing the circumstances is very dubious indeed. My impression of many previous generations is they could have done with plenty more credit: their lives were insanely back-end weighted, most never having discretionary money until they were too old to enjoy it. Borrowing to go to university (in order to boost earnings) is surely preferable to not attending university at all. Why is all financial reporting is delivered from the point of view of a middle-aged share-owning homeowner nearing retirement; it completely forgets that, for a majority of the population for whom much of their total lifetime's saving and investment still lies ahead, a fall in house and stock prices is actually very good news.

Ray

January 27th, 2008 9:34am Report this comment

I still think the old maxim rings true. Earnings = £100, spending = £110: result = misery. Earnings - £100, spending = £90: result = happiness. And whilst borrowing is acceptable to fund a spell at university (if a degree is essential for the career you want to pursue) or to buy a house in which to raise your family, recklessly running up credit card debts buying flash cars just to impress the neighbours or exotic holidays you can't afford seldom proves edifying to the soul. The secret to true happiness lies in learning to be both content with what one has, and willing to give a little of it back to help those who are worse off than you are.

steve

January 27th, 2008 9:43am Report this comment

So The FSA gets a kicking for failing to spot a reckless business plan. Surely it is a very fine line between reckless and acceptably high risk, a line which only becomes obvious with hindsight. I would have thought that the FSA should only be on the lookout for the fraudulent and illegal, otherwise it would quickly sink into a swamp of judegment calls and litigation. i.e. the FSA decides a particular strategy to be "reckless" the bank decides it is "high risk" then what? presumably "I'll see you in court"