Your stupidity, my rent

Skyrim - Khajiit chopping wood

What happened to honest gold for honest work, or simple, affordable housing? Oh, they both moved to Skyrim, leaving the real world to the money-movers.

If you are reading this shortly after I write it, you can hardly have avoided all the talk about financial crisis. Both the USA and the EU are teetering on the brink of a breakdown, after the governments decided to bail out various large banks and similar institutions. The roots of this goes deep into the past, but it should be obvious around the turn of the century, with the “dotcom bubble”. People invested in shares in companies that barely even existed, much less ran a profit. Some of these companies went on to fame and fortune (Amazon and Google found their place in this time), but most did not.

When the bubble burst, the central banks decided to keep interest rates low to avoid a painful recession. Looking back, a painful recession was probably what was needed. Certainly I predicted it beforehand. But instead, we got permanent low interest rates, and the housing bubble. Now people grew richer simply by selling the same houses to each other. Even a child could have seen that this could not last. But people kept hoping that it would last at least long enough that they could take their profit. It didn’t.

Then came the next misjudgment, in my opinion at least. Governments decided that the economy could not survive if the banks were forced to take their losses from the rotten loans. (You may remember the word “subprime”, loans that would normally not have a chance to get paid back, but were given anyway since everyone thought the rising prices would pay back the loan.) People left their homes or were evicted, but there were few new buyers and prices collapsed. This influenced those homes that were not being sold as well, their value fell dramatically. The governments decided that to avoid disaster, they had to bail out the various banks and such.

They did not have to. There were a couple other alternatives. When Scandinavia met the same challenge in the late 1980es, the State generously offered to buy the failing banks for 20 cent each. Not 20 cent for each share, but 20 cent for each bank. The banks that could in any way refinance without this, did, obviously. There were a number of mergers. Those that couldn’t were bought up by the State, which fired the leadership and slimmed the staff, but kept operations running until the crisis was over. The banks were later partly privatized at a nice profit for the State, which always can use money for one thing or another.

Another alternative is to lend, rather than give, the necessary money. In that case, people would obviously be reluctant to buy stock in the banks for quite some while, since all their profit would go to paying off their loans. But such is life. At least they would have the chance to continue. And at least ordinary people’s tax money would not be given as a gift to people who were used to living in luxury both before and after the crisis.

Now we have, after the “dotcom bubble” and the “housing bubble”, a new “government bubble”. Now it is the governments which are mired in debt and can’t find their way out. And who are they going to go to? Well, Greece is going to the EU, but where will the EU go? Or the USA? In God you trust, but will He lend you trillions of dollars? So far the Chinese, the Arabs and of course my native Norway have had that dubious honor. But it won’t last forever when you show no plan, not even a vague idea, of ever paying back or even to ever stop borrowing and spending on yourself.

So the rich world is in a well-deserved crisis.  And because of this, interest rates are just above zero. And because this is the case among all our allies, we have these ultra low interest rates here in Norway too, even though our economy is overheated and direly needs sky high interest rates to cool things down. But we can’t, because the market would immediately buy up our currency. We may be a rich little country, but we are still a small country, with a population half that of Greater London.  Drawing too much attention would disrupt our economy completely.

And so the interest rates stay ridiculously low while people keep feeling richer, and doing the exact same thing as the Americans and Spaniards did before the crisis: Selling the houses to each other for ever higher prices. This again runs over into the rent market, so I have to pay more and more rent for each passing year for the same standard of housing. For years now, the rent has been taking up more and more of my disposable income, doubling in about a decade. This is to no small extent thanks to the stupidity of people in completely different parts of the world.

I can handle it. I am working longer hours, I have moved further and further from the city, and am ready to move to a smaller apartment or a house out in the woods the next time the rent goes up. My desires are pretty easy to fulfill at this stage of my life. But the irony of the situation is still there. I am paying the price for the stupidity of people around the world. Consider my eyes very, very dry when the USA and the EU get the fate they have been hurrying toward for quite a while now.

2 thoughts on “Your stupidity, my rent

  1. I should have just read this instead of asking you all those questions about the economy, huh? Or did this post come after I asked you those questions?

    I still don’t see any sense in the way governments operate, borrowing and lending to each other like they’re playing some crazed game of Monopoly (I’m assuming you’re familiar with that game, whether you’re in the US, Norway, or wherever, since you are an economist-type!). We have a loan for our house, for our cars, and we have utility bills. Sure, we’d love to borrow for neater and nicer things, but since we can’t see ourselves ever being able to justify (or pay off) such profligate spending, we don’t do it. We don’t even use credit cards, only debit cards since they actually “spend money” instead of “borrowing money”. Things are tough now, with only one wage-earner in the house (although I think I have good news on that front, possibly, as of this afternoon), but we CAN make ends meet if we are careful and back WAY off “luxuries” . . . and it’s surprising what all can be considered “luxuries”. Why this logic is right for a household but wrong in general is beyond me. I understand the need for economies to be healthy in order for jobs to exist, etc., but somewhere, somehow, someone has to bite the bullet and say, “We have to cut back. X, Y and Z are LUXURIES. We don’t NEED them.”

  2. Well, I’ve been saying this for years. But the thing is, we economists have a concept called “the tragedy of the commons”. You can google it for more details, but basically, when people pool their resources together, there is a moral hazard in that once someone starts to take out more than their part (and there is always one!), everyone else starts doing the same to defend themselves from losing it all to the greedy. This causes the pooled resources to implode very quickly. (Well, actually the “tragedy of the commons” is a bit more general, but this is how it usually plays out.)

    So X, Y and Z are LUXURIES. We don’t NEED them, but we’re paying for them anyway since others want them, and if we don’t grab them someone else will.

    This is also why communism (giving what you can and getting what you need) is an excellent ideology, but for the wrong species.

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