Most people who watch Swedish TV3's "Lyxfällan" would probably ascribe to the economic philosophy / logic that permeates the program. Namely, that you can not spend more than you have. Some do, however just that by shopping on credit, or borrowed money (which is essentially the same thing). We all know that this is non-sustainable. But how can a person for a long time to live beyond their means as they do in the programme? That's right, through loans. Parents lend their kids money to help them out, but what happens when their resources run out? Parents mortgages the house, but this can only last as long as this money is, and can not pay back the child in question can not be parents to pay their loans. This bubble, in other words,will sooner or later crack. Calling it a "Lyxfällan-logic" that is analogous with the common market economic logic of macro-and micro-level.
But as per our economic system this is not so. According to the Central Bank of Sweden, we spend our way out of crisis (i.e. according to the low interests). Suppose you for a year have less money than usual. What to do? In a makro-like perspective, you spend by borrowing. According to "Lyxfällan-logic" you should be diligent and save. Which option would you prefer? Probably the latter, eventhough it's much harder to do. Consumer society fosters an economic behavior that does not promote saving. Someone might object : "if spend less, many companies in the sales industry will have a tough time, or even worse; fail." This is true. But a major reason for this is that these companies have not saved and built up a reserve to use in bad times.
Me and a friend, who also has an unhealthy interest in guitars, both agreed that a new Fender Stratocaster made in the USA was not worth 12 000 SEK (appr. 1800 dollars), which is what music stores in Sweden charge. It is not that good, frankly. Besides, you can get the same guitar around half of that in the US. So how come people buy these guitars at exorbitant prices? Today you can shop for guitars and other musical equipment on hire purchase (i.e. credit), which costs extra. Suddenly, people can afford to buy a guitar for 12kkr. (with a credit fee of SEK 500-1000). In this way, prices rise. Now if you could not buy on hire purchase, would the price still be the same? Probably not, Why? Suppose every aspiring "young-Yngwie-Malmsteen" or "Steve Vai" would have to save up 12kkr, they would probably find the price to high, which would make prices drop. The logic is simple: to spend, someone has to save. And those who earned their money through saving would also know the true value of money, while those who does not save would not and would therefore be more inclined to spend and possibly buy the expensive guitar.
This example is somewhat analogous to how the Swedish housing market works. Cheap loans make us economically blind. Cheap loans also put our "Lyxfällan-logic" out of play. In an utopian state, a lender would not lend their capital to borrowers who aren't likely to repay, or who's business (consider watching the british TV- show "Dragon's Den") can not generate any income or profits. Now, if a lender would lend money he or she would charge a higher interest rate or a higher share in the borrower's business to counter the risk. One problem with our economy is that we have a Central Bank which lends to banks at low interest rates to "stimulate" the economy. This also means that banks can always get money to continue lending money to people who can not really afford. Banks make money on interest, not by having their clients paying back their loans. Banks can therefore do high-risk business because they know that the central bank has their back. In this economic paradigm, the Central Bank is not going to let the entire banksystem fail. In some sense this is good, because we need banks. But we don't want this to entail bad investments and credits. If banks were to invest their own money and not have access to the Central Bank (think: Dad's wallet), we would probably expect them to behave more cautiously and we would not have a looming housing bubble.
If we now use our "Lyxfällan-logic" as a framework for analysis we can easily se that this won't last for long. Thus, we all have live by the laws of economics whether we like it or not. Regardless of whether we are social democrats, moderate/conservative, communists, feminist, above, below, over whatever ...
What do you think?
But as per our economic system this is not so. According to the Central Bank of Sweden, we spend our way out of crisis (i.e. according to the low interests). Suppose you for a year have less money than usual. What to do? In a makro-like perspective, you spend by borrowing. According to "Lyxfällan-logic" you should be diligent and save. Which option would you prefer? Probably the latter, eventhough it's much harder to do. Consumer society fosters an economic behavior that does not promote saving. Someone might object : "if spend less, many companies in the sales industry will have a tough time, or even worse; fail." This is true. But a major reason for this is that these companies have not saved and built up a reserve to use in bad times.
Me and a friend, who also has an unhealthy interest in guitars, both agreed that a new Fender Stratocaster made in the USA was not worth 12 000 SEK (appr. 1800 dollars), which is what music stores in Sweden charge. It is not that good, frankly. Besides, you can get the same guitar around half of that in the US. So how come people buy these guitars at exorbitant prices? Today you can shop for guitars and other musical equipment on hire purchase (i.e. credit), which costs extra. Suddenly, people can afford to buy a guitar for 12kkr. (with a credit fee of SEK 500-1000). In this way, prices rise. Now if you could not buy on hire purchase, would the price still be the same? Probably not, Why? Suppose every aspiring "young-Yngwie-Malmsteen" or "Steve Vai" would have to save up 12kkr, they would probably find the price to high, which would make prices drop. The logic is simple: to spend, someone has to save. And those who earned their money through saving would also know the true value of money, while those who does not save would not and would therefore be more inclined to spend and possibly buy the expensive guitar.
This example is somewhat analogous to how the Swedish housing market works. Cheap loans make us economically blind. Cheap loans also put our "Lyxfällan-logic" out of play. In an utopian state, a lender would not lend their capital to borrowers who aren't likely to repay, or who's business (consider watching the british TV- show "Dragon's Den") can not generate any income or profits. Now, if a lender would lend money he or she would charge a higher interest rate or a higher share in the borrower's business to counter the risk. One problem with our economy is that we have a Central Bank which lends to banks at low interest rates to "stimulate" the economy. This also means that banks can always get money to continue lending money to people who can not really afford. Banks make money on interest, not by having their clients paying back their loans. Banks can therefore do high-risk business because they know that the central bank has their back. In this economic paradigm, the Central Bank is not going to let the entire banksystem fail. In some sense this is good, because we need banks. But we don't want this to entail bad investments and credits. If banks were to invest their own money and not have access to the Central Bank (think: Dad's wallet), we would probably expect them to behave more cautiously and we would not have a looming housing bubble.
If we now use our "Lyxfällan-logic" as a framework for analysis we can easily se that this won't last for long. Thus, we all have live by the laws of economics whether we like it or not. Regardless of whether we are social democrats, moderate/conservative, communists, feminist, above, below, over whatever ...
What do you think?
Inga kommentarer:
Skicka en kommentar