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Tuesday December 02 2008

A widespread cliché just now is that “we” have “all” been living beyond our means.  People who say this should stop we-ing, and speak more precisely, e.g. for themselves.

Some weeks ago I had a recorded conversation about the financial crisis with a couple of mates, one of them being Michael Jennings.  Michael spoke eloquently about the social pressure that was put upon him by friends and relatives, until recently that is, to buy a property, to “get on the housing ladder”, etc.  Now that this particular ladder has turned into a snake, he is entitled to be rather smug.

Now, I feel that I am being criticised by all these we-ing commentators for something that I also did not do.  I have not been living beyond my means.  True, these means were mostly bestowed upon me by my more hard-working father, deceased.  Every time I do manage to earn some money, a larger dividend seems to arrive at much the same time, sometimes even by the same post, associated with some of the shares my father bestowed upon me, and it is as if my father is mocking me from his grave.  A quarter of my dead body, he seems to be telling me, earns more than you ever can.  Not that he would ever talk in this graceless way, but you get the picture.

So, yes, the means that I have not been living beyond were and are mostly not of my making.  But the lease for my one bedroom flat is all paid.  I have cash as well as shares.  Yet every morning I read things like this, from Kathy Banaszak:

The lesson seems obvious: Living beyond our means never works. In the subprime meltdown, one thing is clear: No one is without blame.

Or this from Peggy Drexler:

This had to happen because we were living beyond our means. This will recalibrate a value system that has somehow equated worth with wealth - where we spoke with pride about the size of screens and numbers of toilets.

Or this, from someone called Danny Gabay:

We have lived way beyond our means.

I agree with many of the points these people are trying to make with their excessive generalisations, but: not me.  I haven’t been living beyond my means.  I do spend more than I might on second hand CDs, and above all, I don’t work nearly as hard as I might, and I have other vices.  But, I pay the price of them not by piling up debts but by going without far bigger indulgences.  Wife.  Children.  Car.  Expensive holidays.  Expensive clothes.  Expensive nights out.  All cars, wives and children are expensive.  I do go on cheap holidays and cheap nights out, sometimes, and I do buy clothes every so often, but my favourite clothes shops are Primark and Oxfam.  My flat, with its one toilet, is exactly as it was when I moved in, apart from the cheap lino I put down on the kitchen floor, and the many shelves I have put up.  My living room carpet is a disgrace, as are my window frames.  My television is old and pregnant out the back, and I speak about that with pride.  I almost never go to the theatre, and have been to the opera once during the last decade.  Waste of money it was too.  It’s not that I especially recommend this way of life to others, and I certainly do not think that governments should discourage lending and borrowing, any more than I think they should encourage it.  Credit makes the wheels of commerce turn.  I understand that.  And maybe if I had got more and spent more I would have developed my powers rather than lay them waste in the way that another we-er, William Wordsworth, warned against:

Getting and spending we lay waste our powers.

But the main way that getting and spending can lay waste powers is that some people who also get more by borrowing on the strength of what they may or may not be able to get in the future, and what they are liable then to get is into trouble, as my mother (who raised me to live within the means her husband gave me) warned.  But not everyone has behaved in the manner my mother warned against.  I took her advice.  We are not all guilty.

While I completely agree with you about the sweeping generalisations and accusations leveled at us by the media in this case, I must take exception with one part of your synopsis.

The sweeping generalisation that “All cars, wives and children are expensive.”

Not so. My car isn’t expensive. It’s cheap to run, comparable with what there is of a public transport system over here and moreover saves me time - and time is money.
My wife isn’t expensive. Indeed, her (gently) controlling influence probably assists me in not living beyond my means. Plus she brings in a substantial wage, which increases those means.
My kids are expensive. I’m not going to try and deny that. Healthcare, education, clothing, entertainment, ponies etc etc. But maybe my kids are my hobby, in the same way that your second hand CDs and cheap lino are yours.
(And if my wife reads that comparison, I’m dead.)

Posted by 6000 on 03 December 2008

Well, if “we” have been living beyond our means, then “we” must do something about the situation. The second “we” means “The government must bail people with too much debt out”, of course, ideally without their having to acknowledge that their houses are worth half what they thought they were worth.

To fund this, the government must either raise taxes (nasty) or borrow money and inflate the debt away later. Both of these things ultimately mean taking money from people who have not lived beyond their means and giving it to people who have. The second option has the added bonus that the value in pounds of people’s houses goes down less, and they can pretend that they have not lost so much. (It is just the pounds that are worth less).

I have a little money invested in mutual funds which have gone down in value, but most of my assets are cash. Unfortunately, we are talking Sterling, and the pound has declined so much this year that in dollar or yen terms my net worth has gone down quite a bit. If I stay in the UK this matters not so much, but it lowers my flexibility with respect to moving elsewhere later. I am kicking myself for not diversifying my assets into a mix of currencies a year ago. Doing it now is not a particularly attractive proposition.

Or in a nutshell: I am in a position where the UK government can completely trash me if it wants to. (Admittedly, so is just about everyone else in Britain, but that does not make things better). The utter lack of even the slightest competence on financial matters of the British government is far, far worse than I thought. (The handling of the Northern Rock situation last year made this obviously clear, and I should have taken my assets a long way away as a consequence, but I didn’t). If they really keep on like this, I am going to regret the fact that I kept my money in Sterling even now. All I can hope for is that we manage to get rid of these jokers at the next election and get a government bold enough to undo some of the damage.

Posted by Michael Jennings on 03 December 2008

I HAVE been living beyond my means, which is what happened to my former practice, ultimately. But what you say does remind me of something I want to write about at greater length sometime: that this is a time in history where it’s possible for educated, intelligent people to live a full cultural life, one once only available to the very well off, for no more than the cost of an internet connection. Everything, for the moment, is out there if you know where to look. It’s a remarkable time to be alive.

Posted by James Hamilton on 03 December 2008

In our household of four adults and one child everybody is totally debt free and living within their means. My parents paid off the mortgage when I was still at school, credit cards are always paid off in full every month and everyone, even my 5 year old daughter puts some money away every month.

I can safely say that we are living within OUR means too.

Posted by Ruth on 09 December 2008
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