28 April 2015

Big Ideas on the politics of personal debt

Some judicious planning meant that I was able to get a good run at attending Big Ideas discussions and at this time I was getting to most of them, mostly by arranging to work in London on the last Tuesday of the month.

The serious talking starts at 8pm, though I like to arrive well before that to secure a decent seat, and that allows plenty of time beforehand to grab some food, almost always a Large Thali at Govinda's just off Soho Square, and I sometimes get time to visit a gallery too.

Our topic this month was "What are the politics of personal debt?" and our leader in the discussion was Johnna Montgomerie, a lecturer at Goldsmiths, University of London, and a member of the newly formed Political Economy Research Centre. She has published widely on financialisation and household debt. She also managed to get more safely the previous month despite being taken to the wrong tube station initially by some fool (me).

As always these are my notes relating to the discussion, none of the words are attributable to anybody and all the mistakes are mine.

While there has been an awful lot of discussion about the deficit, the Government's increasing debt, little attention has been paid to household debt which is growing rapidly.

Part of this is a deliberate move by the Government, e.g. in moving some services from the public to the private sectors so we pay for what used to be covered by taxes (university education and prescriptions, etc.) and also by cutting benefits so that people are encouraged to borrow more to maintain their standards of living.

This is creating a personal debt problem that we have no answer to. Johnna's main hypothesis is that we should adopt debt forgiveness programmes, much as we had for many developing countries in the seventies and eighties when it became clear that either they could not pay the loans pack or to do so would cripple them.

I had some sympathy for this idea but the case for debt forgiveness lacked a compelling argument. In order to take action it has to be clear why this is necessary, i.e. it has to be shown that the household debt problem will become a crisis for us all, of the kind of the 2008 banking crisis, rather than just a problem for those individuals in debt.

A lot of the discussion that followed was on the "fairness" aspect of this, such as the fairness of letting somebody off their debt when other people had managed to live within their means. I made the point that I had played by the current rules and had paid for my two sons to go through university without any debt so if all student debt were to be forgiven (written off) then I would be tens of thousands of pounds worse off than if they had taken loans out.

If debt forgiveness is unacceptable then are there things that we can do to stop people getting to this extreme stage? Curtailing the maximum interest rates charged by pay-day lenders might be a help but there are many ways to get into debt, in particular it is very easy to get new credit and store cards.

Giving people more money through, for example, raising the minimum wage significantly, could be another way to reduce the debt problem.

I found the phrase "debt forgiveness" something of an issue. I have no problem with helping people who need help, that is what I hope my taxes and charitable donations do, but "forgiveness" suggests that those in need have knowingly done something wrong.

We spent some time talking about the role of banks in all this, in issuing the loans in the first place, but this strand got somewhat confused as few people there understood how banks work well enough to make meaningful contributions. For example, it was suggested that banks could create loans (assets) without hindrance or risk but this is not the case; if it was then they would be issuing even more loans and not worrying if some were not paid back.

Overall the discussion lacked some direction and faltered on some of the detail but the time spent in the middle territory, the politics of personal debt, was useful and thought provoking. There were definitely some good ideas trying to get out in there somewhere.

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