Category: Politics

If there is one thing the ongoing financial crisis demonstrates, it is the need for fiscal discipline. The causes of the crisis call attention to the more problematic characteristics of debt. At the same time, the prospect of bank failures and the curtailing of lending highlight the degree to which debt has a legitimate and important financial role to play. In short, debt incurred to finance investment is often justifiable; debt used to finance consumption is unsustainable.

Perhaps a healthy cultural outcome of the crisis would be the re-stigmatization of debt as a means of accelerating consumption. By all means, it is important for people to be able to access financing in order to fund education and other forms of investment. What is worrisome is the tendency towards low or even negative net savings, as well as taking on debt of an especially pernicious sort: on credit cards. Taking responsibility and making informed choices remains necessary, even if governments choose to regulate financial markets more closely.

People with a clean credit history who are paying credit card interest really ought to look into alternative financing options. Credit card interest rates are often around 20% per year, and minimum monthly payment amounts are just 2% of the outstanding total. That means your debt is growing by 1.67% per month, and you are paying it down by just 2%. The amount of principal being paid off each month is tiny.

Someone who put $1000 on a card with 20% interest, then proceeded to make minimum payments only, would have the debt down to $500 after 210 months (17.5 years), having paid $3043. Sticking to minimum payments, there is still $40 left after 1000 months (83 years), by which time the person would have paid $5838. The credit card company would be delighted for them to keep paying forever. Just by paying off 10% of the balance each month, instead of 2%, the time taken to reduce the debt to $50 becomes 36 months (3 years), at a total cost of $1148.

Both borrowing and lending are activities that need to be undertaken with wisdom and restraint. Hopefully, that will be the message that governments and individuals draw from the world’s present economic woes.

One feature of political geography seems to leap out whenever I look at a map of election results: the more closely together people live, the more liberal they tend to be. Big cities vote Liberal or NDP in Canada, Democratic in the United States. By contrast, small towns and rural areas tend to be more conservative. Two hypotheses occur to me immediately:

1. Liberal people choose to live in cities.
2. Living in cities encourages people to be liberal.

To some extent, I think both are plausible.

The first trend is self-reinforcing. Because cities are mostly full of liberals, they attract liberals from conservative areas. Just think of the stereotype of the young gay person who moves to the big city to find a more tolerant community. While it is a stereotype, it does have the ring of truth to it. Similarly, one might expect clustering even within urban areas: with some predominantly liberal areas continuing to attract new liberals, while other relatively conservative areas do likewise.

The second hypothesis is more interesting. I can think of a few reasons for which it might be true. Mostly, they have to do with being exposed to large numbers of other people. Spending time in the company of people of differing races, classes, sexual orientations, and so forth may well reduce your chances of fearing them. I think it is likely that working with and befriending people with cultures and experiences different from your own is generally likely to make you more empathetic, tolerant, and socially progressive. It may also be the case that people in cities tend to get exposed to new ideas more rapidly and often, putting them ahead of the curve in terms of incorporating them into their own philosophies and lives.

At the same time, just spending time in close proximity to a lot of people reinforces the fact that we are all dependent upon one another, and we cannot live our lives in ways that do not affect those around us. In short, people in cities are constantly exposed to economic externalities: both in the positive form, as with public transit, and in the negative form, as with noisy neighbours or automobile exhaust.

Those in sparsely populated regions may be better able to sustain the myth of self-sufficiency, despite how virtually all rural lifestyles in rich states are just as mutually interdependent as urban lifestyles. Arguably, the lack of contact with both different forms of people and with large numbers of densely-packed people contributes to important elements of political conservatism. I realize that two of the underlying arguments above are likely to bother conservative people: essentially, that social conservatism is the product of isolation and fear and that self-reliance is largely a myth. Feel free to debate those positions, as well as the general question of why people of different political inclinations cluster the way they do.