I was considering my post The Great American Variety, about the amount of variety Americans are exposed to in grocery stores, pharmacies, gas stations, etc. It's enormous. As I've been walking through the streets of South America (Buenos Aires, Perrito Moreno, and Montevideo specifically) I have also been considering not only the variety in these places but also the ease (or difficulty) with which people in these places can spend money.
In the United States, we make it relatively (ok, VERY) easy for people to spend money. Credit cards typically aren't difficult to aquire and you can use them ANYWHERE. Seriously, tell me the next time you can't use a credit card. Even without credit cards, there are debit cards, which, too, are accepted everywhere. Then there's cash and I see no short supply of ATMs. There are checks, but who uses those at retail outlets anymore? I think even now at Home Depot you can pay with PayPal. And payments are getting easier. Look at the Square payment system, PayPal competing with it. You can transfer money in all sorts of ways. Google Wallet. The new ISIS payment system backed by the big mobile providers (AT&T, Verizon, T-Mobile) and credit card companies (AmEx, for example). It is very easy to spend your money in the US.
It is not quite the same situation outside the US. Granted I haven't visited everywhere, but I've found nowhere where it's quite so easy to spend money. In Europe, for example, they take card everywhere. It's fantastic and it's safer than carrying tons of cash around with you. But from what I can tell, it's more difficult to aquire a credit card in these places. Even in Canada, debit cards are very popular, credit cards less so. In India, outside of some restaurants and hotels, it was all cash. And ATMs were scarce. I don't know how people bought or sold anything over there. In Buenos Aires, plenty of places take card, but as I discuss in my post More on currency, arbitrage, and XOOM, you get the shitty bank rate when you use your credit card so it's foolish to use a credit card rather than use cash. But I was able to use my credit card at a grocery store in Montevideo yesterday! It was magical.
So I've been thinking this: if you make it very easy for people to spend money (to both get credit or at least make their cash readily available and easy to spend) and give them a wide variety of things to spend their money on, they would, probably, spend more money. In contrast, if you don't make it as easy for people to spend money (and if they haven't seen the US, they don't know the difference) and give them less variety (which, again, if they haven't seen the US they don't know better), they most likely won't spend as much of their money.
So which is better? Should the government be like protective parents, not letting their kid play on the jungle gym lest they hurt themselves, depriving them of an opportunity for fun? Or should the government give the people freedom, the freedom to play on the jungle gym but also potentially fall off and break their arm?
It's a difficult question. I'll address two of them here: limiting the upside and freedom.
Limiting The Upside
When I say limiting the upside, I mean, limiting the potential for positive outcomes. When you keep the child off the jungle gym, you ensure his safety (lest a meteor hit the earth right then, but, well, let's get into the finite nature of life at the moment). But you also "limt his upside". First, you are inhibiting his chance to have fun and enjoy that experience; to make himself happy. But you may also be blocking something you aren't thinking about, maybe like playing with someone on the jungle gym and making a friend. You are not only stopping the child's fun, you are also impeding his social growth and possibly making a longtime friend. That doesn't seem fair. I think in this case the upside far outweighs the downside the child should be allowed to play.
Let's put some scale to this: let's consider the economy.
If everyone can get easy access to credit and spend their money easily: In the short term, people will overspend and not be able to, for example, buy school supplies for their children. Or pay their mortgage and get behind for a month. Or in the long term they won't save enough for retirement.
If people have less access to credit and can't spend their money quite so easily: people save more but the economy suffers and doesn't grow as fast because people aren't the consumers they could be. Less tax revenue is generated for social programs. But at the same time, there isn't a catastrophic bubble that leads to economic crash and financial ruin for millions of people. Oh, and people save enough money to buy their kids broccolini and for their retirement. Hm.
Freedom
I'm not gonna beat the flag over this. I simply think people should be allowed to make their own choices, not have the government make them for you (in a lot of things, not all things). When it comes to spending money, people should be able to if they want to. This is a very, VERY broad subject and I know I'm wide open for attack here, but I'll just leave it there.
My Solution
As is always the right answer in these cases, it's freedom with controls. Put controls so the banks can't endanger themselves by extending so much credit they can't cover the bills if consumers don't make their credit card payments every month.* Make sure the playground is a safe environment. Put the helmet on the kid if you want to. But let him go play. Don't cut your nose off despite your face.
Note: This is not an "everything in moderation" approach because I don't think everything in moderation is a good idea. For example, I don't think cancer in moderation is a good idea.
*Also, monitor and update the controls as you go/periodically. People will always try to game the system. Be vigilant in accordance with how much is at stake. So when it comes to the economy and the health of our financial system, it's EVERYTHING. If the money supply stops, so does our food supply. So watch that shit.
In the United States, we make it relatively (ok, VERY) easy for people to spend money. Credit cards typically aren't difficult to aquire and you can use them ANYWHERE. Seriously, tell me the next time you can't use a credit card. Even without credit cards, there are debit cards, which, too, are accepted everywhere. Then there's cash and I see no short supply of ATMs. There are checks, but who uses those at retail outlets anymore? I think even now at Home Depot you can pay with PayPal. And payments are getting easier. Look at the Square payment system, PayPal competing with it. You can transfer money in all sorts of ways. Google Wallet. The new ISIS payment system backed by the big mobile providers (AT&T, Verizon, T-Mobile) and credit card companies (AmEx, for example). It is very easy to spend your money in the US.
It is not quite the same situation outside the US. Granted I haven't visited everywhere, but I've found nowhere where it's quite so easy to spend money. In Europe, for example, they take card everywhere. It's fantastic and it's safer than carrying tons of cash around with you. But from what I can tell, it's more difficult to aquire a credit card in these places. Even in Canada, debit cards are very popular, credit cards less so. In India, outside of some restaurants and hotels, it was all cash. And ATMs were scarce. I don't know how people bought or sold anything over there. In Buenos Aires, plenty of places take card, but as I discuss in my post More on currency, arbitrage, and XOOM, you get the shitty bank rate when you use your credit card so it's foolish to use a credit card rather than use cash. But I was able to use my credit card at a grocery store in Montevideo yesterday! It was magical.
So I've been thinking this: if you make it very easy for people to spend money (to both get credit or at least make their cash readily available and easy to spend) and give them a wide variety of things to spend their money on, they would, probably, spend more money. In contrast, if you don't make it as easy for people to spend money (and if they haven't seen the US, they don't know the difference) and give them less variety (which, again, if they haven't seen the US they don't know better), they most likely won't spend as much of their money.
So which is better? Should the government be like protective parents, not letting their kid play on the jungle gym lest they hurt themselves, depriving them of an opportunity for fun? Or should the government give the people freedom, the freedom to play on the jungle gym but also potentially fall off and break their arm?
It's a difficult question. I'll address two of them here: limiting the upside and freedom.
Limiting The Upside
When I say limiting the upside, I mean, limiting the potential for positive outcomes. When you keep the child off the jungle gym, you ensure his safety (lest a meteor hit the earth right then, but, well, let's get into the finite nature of life at the moment). But you also "limt his upside". First, you are inhibiting his chance to have fun and enjoy that experience; to make himself happy. But you may also be blocking something you aren't thinking about, maybe like playing with someone on the jungle gym and making a friend. You are not only stopping the child's fun, you are also impeding his social growth and possibly making a longtime friend. That doesn't seem fair. I think in this case the upside far outweighs the downside the child should be allowed to play.
Let's put some scale to this: let's consider the economy.
If everyone can get easy access to credit and spend their money easily: In the short term, people will overspend and not be able to, for example, buy school supplies for their children. Or pay their mortgage and get behind for a month. Or in the long term they won't save enough for retirement.
If people have less access to credit and can't spend their money quite so easily: people save more but the economy suffers and doesn't grow as fast because people aren't the consumers they could be. Less tax revenue is generated for social programs. But at the same time, there isn't a catastrophic bubble that leads to economic crash and financial ruin for millions of people. Oh, and people save enough money to buy their kids broccolini and for their retirement. Hm.
Freedom
I'm not gonna beat the flag over this. I simply think people should be allowed to make their own choices, not have the government make them for you (in a lot of things, not all things). When it comes to spending money, people should be able to if they want to. This is a very, VERY broad subject and I know I'm wide open for attack here, but I'll just leave it there.
My Solution
As is always the right answer in these cases, it's freedom with controls. Put controls so the banks can't endanger themselves by extending so much credit they can't cover the bills if consumers don't make their credit card payments every month.* Make sure the playground is a safe environment. Put the helmet on the kid if you want to. But let him go play. Don't cut your nose off despite your face.
Note: This is not an "everything in moderation" approach because I don't think everything in moderation is a good idea. For example, I don't think cancer in moderation is a good idea.
*Also, monitor and update the controls as you go/periodically. People will always try to game the system. Be vigilant in accordance with how much is at stake. So when it comes to the economy and the health of our financial system, it's EVERYTHING. If the money supply stops, so does our food supply. So watch that shit.
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