Play now, pay later?

In an environment apparently driven by personal consumption and a ‘play now, pay later’ attitude, where does responsibility for consumer debt begin and end? With growing fears of ‘debt addiction’, are we doubting individuals’ ability to take advantage of credit? Debt is often discussed as a moral issue – but what do growing levels of debt tell us about the state of the economy?

On the panel of the spiked-seminar on 20 May were Daniel Ben-Ami, author of Cowardly Capitalism: The Myth of the Global Financial Casino, and Ann Pettifor, senior associate at the New Economics Foundation.

The lively debate began with Ann Pettifor declaring ‘out of control’ consumption to be the bane of first world countries, most notably the UK and USA. She maintained that the debt crisis is an impending threat, rather than a case of exaggerated statistics or scaremongering. Because the government and central banks have relied heavily upon consumer spending to buoy the economy during financial market downturns, lenient lending practices, low interest rates and financial deregulation have solicited the unwitting consumer to be the saviour of the economy. Pettifor even likened the working and middle classes to the Greek mythological figure, Atlas, carrying the health of the economy on their shoulders.

Pettifor blamed the government and central banks, rather than consumers, for this state of affairs. ‘Deregulation and the lifting of controls to credit creation have caused the economy to spin out of control…the government and central banks are responsible for the fact that many of us are in debt because the current financial system is engineered to promote unrestrained consumption.’ Because of decades of ‘easy money’, a credit bubble now exists that could be dangerously close to bursting. Should the credit bubble rupture, Pettifor argues that working- and middle-class citizens will suffer the most – consequently, she calls on government and central banks to toughen loan policies as well as give greater protection to those who have fallen prey to banks’ schemes.

Daniel Ben-Ami contradicted Pettifor on almost every point. He made the case for taking a more ‘balanced’ view of the economy, imploring the audience not to focus on an interpretation of statistics that could be ‘one-sided, moralistic and politically motivated’. Instead, he insisted that debt should be put into its proper context, with a ‘rigorous’ examination of real values that takes inflation into account. In view of inflation, the current consumption boom could be seen as a rational response to lower interest rates. Rather than a government ‘conspiracy’, high rates of spending correlate directly with the fact that acquiring money is cheaper.

Ben-Ami also said that financial journalists are partly responsible for the media hype surrounding the debt question, because they ‘typically just pick the most negative statistics they can find rather than trying to work out what’s really going on’. His overall message was: not all debt is bad, don’t buy into the hype, and have a balanced view of statistics.

He went on to explain the evidence behind his stance. Data from economic journals and consumer websites suggests that household repossessions and consumption debts are at their lowest levels since the early 1980s. He argued that assets are three times the level of debt in the secured sector, pointing out that: ‘the key indicators to examine are debt relative to income (or to GDP at a national level) and debt service levels (the average value of repayments that borrowers have to make as a proportion of their income)’. When the economy is growing, it doesn’t matter if you’re in debt, because you know you’ll be earning more tomorrow. The problem with the sustainable development ethos put forward by Pettifor, argued Ben-Ami, is that it sees economic growth as a problem, and suggests that people should rein in their aspirations for a better life.

When the debate moved to the floor, audience members offered their own theories for the recent surge in personal consumption. Andrew Davis, a scenario-planning expert, felt that the panelists’ focus was too narrow, and suggested that external factors such as the current oil crisis or war in Iraq are key issues that have to be factored in the debt equation.

James Woudhuysen, professor of innovation at De Montfort University, took up Ann Pettifor’s points. He argued that the preoccupation with ‘out of control’ personal spending was very much an issue of our times: ‘British Puritanist ethic has already attacked binge drinking, binge gas guzzling, binge refinancing of mortgages, and now binge spending as working class problem…this is very much a part of the moral climate of today.’ It is not the working classes who are doing most of the consuming, he argued, but the middle classes.

Dinah Tobias raised concerns that current spending trends were sending the wrong message to young adults and children. In previous decades, being in debt was something shameful and looked down upon, whereas now it is acceptable – even trendy – to be ‘broke’. She also feared that once more consumers find themselves struggling to repay outstanding debts, the debt issue could become a mental health issue.

A number of attendees asked about the issue of government and corporate debt. When a firm becomes insolvent or collapses because of ‘dodgy’ accounting practices, such as Enron, it was argued that these events have catastrophic effects that ripple through economy and affect all consumers.

Although Ben-Ami and Pettifor differed on consumer debt, they agreed that the debt discussion is one of the key economic issues of the day, and looks set to become even more heated in the future.

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