

The Culture of Debt - robg
http://www.nytimes.com/2008/07/22/opinion/22brooks.html?partner=rssuserland&emc=rss&pagewanted=all

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tialys
The real problem is our culture of entitlement. People have been lead to
believe that NOTHING is outside of their grasp, leading them to live well
outside of their means by buying expensive houses and cars that they can't
afford because they can make the payments now. I have no sympathy for these
kinds of people, it's absurd to say it's not their fault. Good financial
planning is common sense: Pay yourself first, save for emergencies, live
within your means.

Don't pass this off on society, it's an issue of choice. You choose to buy a
house you can't afford, or a car. The only person to blame for your debts is
yourself.

~~~
mechanical_fish
I'm not going to say that you're wrong. Your approach is a wise one, and it's
one that I follow myself.

But there _is_ more to it than that. You shouldn't let society off the hook,
here. The problem with a society where credit grows on trees is that it pushes
the price up on everything. Why does that tiny house on the corner cost $700k?
Because if you offer $350k in cash you will be outbid by the unemployed guy
down the block whose bank is willing to loan him $700k.

If you won't take those loans... perhaps you don't get to own a house. That's
okay with me, but I'm relatively well paid and can afford some fairly well-
located rental housing. A less well-paid person like a schoolteacher or a
librarian might have to choose a two or three-hour commute, or leave the city
of their birth altogether, unless they're willing to become debtors like the
rest of their peers.

Think about college. Does your determination to avoid debt extend to college?
Is your desire to attend MIT evidence of your "sense of entitlement"? When
you're interviewing with the Ph.D.s at Google and you show them your degree
from the DeVry Institute, do you think they're going to congratulate you on
your good financial sense? Um, no. But to attend MIT you're going to have to
compete with the people who are willing to go into debt -- and, because the
easy credit of the last decade has encouraged colleges to raise tuition
through the roof, you will need _lots_ of debt of your own, or a _very big_
pile of cash. Colleges wouldn't be so expensive if credit weren't so easy to
get.

Being financially prudent is smart, but it's hard to do it on your own when
society is swimming in the other direction.

~~~
nostrademons
MIT's a bad example now, since tuition is completely free for anyone whose
household makes less than $75k/year. Same goes for Stanford (under $100k),
Amherst (under about $60k), and a bunch of other top colleges. I paid only
about 1/3 of the Amherst sticker price, less than the UMass sticker price for
a much better name & connections, with the rest being covered by outright
grants.

This trend is new, last few years only, so nobody who went to school 10+ years
ago should feel screwed over. (Other than having a bad birthday, of course.)

I'm just worried that a lot of people who could've made it into MIT or
Stanford or Amherst say "This is too expensive" and don't try for it. If you
can get in and really want to go there, they will find a way for you to be
able to attend. Always compare financial aid awards before deciding, and know
that you can often get back to the financial aid department with "Well, I
really really want to go to Amherst, but I just can't afford it" and odds are
good that they'll up your financial aid package. (Assuming you really can't
afford it - you should expect to have to sacrifice some lattes and vacations.)

The rest of your post is right-on. It's really the middle-tier colleges and
state universities that are inflating rapidly though, because those are the
ones whose student bodies rely the most on loans.

~~~
mechanical_fish
_MIT's a bad example now, since tuition is completely free for anyone whose
household makes less than $75k/year._

Yeah, it's easy for us old-timers -- or those of us whose friends and
relatives are trying to afford those middle-tier schools that don't have this
policy -- to forget this fact.

But good for MIT, Harvard, and the other elite schools for taking this new
path. It might have made a big difference in my life had it happened years
ago.

 _If you can get in and really want to go there, they will find a way for you
to be able to attend._

Yes, and this was true back in my day as well. They make it _possible_ to
attend... by going into debt. The amount of debt that is considered _possible_
is, however, constrained by the supply of credit and by the amount of debt
that society considers "reasonable". That's a much larger number today than it
used to be.

My point is that societal factors like credit policy, accounting practices,
banking regulations, and the popular acceptance of the debtor lifestyle
_change your environment_ in ways that are difficult to ignore and resist,
even for those of us who are informed enough to try to avoid debt.

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bokonist
For the past 7 years, the federal funds rate has been around 2-6% while the
monetary inflation rate has been between 4-8%. In other words, interest rates
have been negative. This isn't a problem of "culture". People are responding
to incentives.

~~~
fallentimes
The inflation rate has not been between 4% and 8% each year;it's been between
1% and 4%.

Source:
[http://www.inflationdata.com/Inflation/Inflation_Rate/Histor...](http://www.inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx)

~~~
bokonist
That's the number for price inflation. Price inflation is monetary inflation
minus increases in productivity. Price inflation is useful for determining how
standard of living has changed. Monetary inflation ( another word for it is
money supply growth or dilution) is the right number to use to determine if
interest rates are negative. I was using nominal GDP numbers as the number for
money supply growth, although some people use M2, M3 or MZM. Each number has
its pros and cons.

------
sofal
>The Treasury and the Fed are trying to stabilize the system while still
ensuring that those who made mistakes feel the pain.

I'm not clear on how the "ensuring" part is coming about. Can someone fill me
in?

~~~
MaysonL
IndyMac stockholders took a big bath, so did Countrywide, so did Bear Stearns.
Whether the management at those companies were given due anguish is another
question.

------
aspirant
"...people and communities learn and adopt different social standards."

No kidding. To give you an idea of just how wide ranging the standards can be,
consider this passage from Gandhi's autobiography.

"...there was an unwritten law among the Porbandar Memans living in South
Africa that death should be preferred to bankruptcy."

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ALee
The salient point of the article is that between the towers of personal
responsibility and social protection, the community determines the culture. In
this case, the culture of credit card debt (plus more) became socially
acceptable.

This point gave me pause because our startup changes our spending habits
depending on the community we're around. Let's take the small example of
cooking. When it was just us, we would focus on the product, and then each
night, someone would cook (cheapest possible method). Then when we started
getting into the tech community and received a little bit of seed funding, our
culture shifted toward eating out more and we stopped being as stingy. The
more we read Techcrunch, go to SXSW, hang out with designers, the more we get
lax. We aren't on fire, we're just in a hurry.

------
patrickg-zill
There are two financial "Worlds" you can live in. One is the world of Debt,
the other is world of All-Cash. You can prosper in either one of them - but if
you get stuck having to go back and forth between them, you will feel pain.

------
edw519
Sorry, I just don't see what's so complicated. This isn't about "buy vs.
rent", listening to what popular media says, keeping up with the Jones's,
maximizing your long term possibilities, competing with anyone else, and
certainly not about "society".

It's about paying your frickin' bills.

A bill unpaid, for _any_ reason, is a broken promise, and gets little sympathy
from me. It will, however, get help from me on April 15. Something's really
wrong here.

------
weegee
well all I can say is I owe my lifestyle to the payday loans store on the
corner. If it weren't for those nice people, I wouldn't own all the nice
things I own.

