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Friday, December 10, 2004


responsible personal finance

the personal consumption habits of americans are a topic of much more conversation among economists than american consumers. there seems to be an assumption -- typically american -- that the whole world must work as we do.

how mistaken that is. i doubt most americans understand how much they borrow, how little they save, or the consequences of both.

in contrast, the wall street journal cover article today bemoans the 'tight wallets' of european consumers and the implications for regional growth -- putting much of the onus, perhaps rightfully, on european regulation designed to protect workers and consumers.

... rules designed to save citizens from harm have conspired with economic cautiousness to close wallets in continental europe. a thicket of laws to protect employees ensnares retailers, keeping prices high and store hours short. among other regulations, greece bans non-greek store names, and italian supermarkets cannot have gas pumps. limits on consumer finance protect borrowers from indebtedness -- and stifle use of credit cards. western europe has only 0.27 credit cards per person, compared with 2.23 in the united states. state pension systems are running out of funds, so people save extra for their retirement. moreover, many affluent europeans just don't want to spend their free time shopping.

residents of the 12 countries using the euro save 10.52% of their disposable income compared with 0.8% for americans, according to the oecd....

anke hemmann... a psychologist from plauen, germany,... thinks the country's state pension system will be severely reduced by the time she retires.... "i'm not relying on there being anything," says ms. hemmann, 27 years old. "if there's something, that's a bonus." so she puts 12% of her disposable income in a life-insurance policy that will serve as a private pension. that doesn't leave much for shopping, which -- like many europeans -- she's not that interested in anyway. she buys shoes three times a year....

despite having a steady job, ms. hemmann doesn't like to spend with her credit card. she mainly uses it for convenience when vacationing abroad, and her current balance is zero. "i know it's probably bad for the economy," she says of her prudent lifestyle, but adds: "debt is disreputable. i was brought up to spend only what i have."
perhaps that reads as an indictment to the journal, but that sounds a lot like responsible moderation to this lonely observer. try to imagine an american 27-year-old woman with a comfortable salary practicing such fiscal responsibility.

this is but a small excerpt from a long article, well worth reading for its other examples of euro area debt aversion. the article goes on to blame the american current account deficit (for which even prominent americans cannot stop blaming anyone but ourselves) and european political decline on euro consumer cheapness, pessimism and socialism -- the shopworn argument for american supremacy which, of course, has some merit.

the verdict is priceless -- the only way out of this cycle: shopping. i wonder if they hear themselves.

i think europeans and americans essentially identical animals. under similar circumstances, europeans would behave just as americans do. so the difference between the two behaviors is cultural. every european nation has had a bout with profligacy.

and again, people are just domesticated animals. culture is partly the random vacillations of animals, but can also be heavily influenced by the propaganda of the age -- media, law, politics, the civilizational dialectic. most people usually do just as their told.

the difference between europe and america relative to consumerism is clear, and articulated by jacques zeegers, secretary-general of the belgian banking association, when asked about belgium's legal hurdles for individual indebtedness greater than $1,600:

"it's to protect the consumer from himself."
in america, that would be a call to revolution for the vast consumer militia -- which has been told, vehemently and in many ways subtle and overt, that they have no obligation to behave responsibly with respect to debt. but virtually no banker in america would ever utter such a thing because for a bank debt is profitable, and bankers have been told that profit is essentially their paramount motivation.

i frequently decry the absurd excesses of emancipated individualism in the west, and the deleterious social effects that a culture of irresponsibility is destined to generate. that irresponsibility has become particularly acute in america and is manifested not just in its politics but in its economy -- which has further perhaps been compounded by too long a run without some measure of financial devastation thanks to a federal reserve and a treasury hellbent on preserving the american economy from any skinned knee, regardless of the moral hazard it might create.

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