Moralising about economic slump

The moral preaching explaining economic slump.

In the next few weeks, the khutbah in mosques will be very predictable. So too the subject matter debated on Forum Perdana and similar programs. The theme will be the same- that the economic slump we are facing is a form of moral comeuppance. We have been spending beyond our means. Membazir! They thundered. And some pious looking personages with their skullcaps will preach that this behaviour is irreligious.

How can the average Malay be spending beyond their means where, in the first place, on average they have lower incomes than other ethnic groups? Or even the average Malays have incomes and income means very much lower than say incomes earned by not the average Malays as in UMNOputras and those fat cats living off some commission fees?

On the other hand, the "living beyond our means" argument, with its thinly-veiled suggestion of moral turpitude, is technically correct. Over the last few(10-15) years, average household debt has soared to record levels, and the typical family has taken on more of debt than it can safely manage. Our property market will soon flip over. Then the housing bubble will burst and home/property prices will fall, eliminating easy home equity loans and refinancing.

But this story leaves out one very important fact. Why do people take loans? Go into debts? For the fun of it? If we analyse close enough, I think we should be able to see that median family income has been dropping, adjusted for inflation. One of the main reasons the typical family has taken on more debt has been to maintain its living standards in the face of these declining real incomes. It's not as if the typical family suddenly went on a spending binge --- buying hummers or Aston Martins, and taking ocean cruises on liners owned by Genting Group, going for holidays on the Riviera. No, the typical family just tried to keep going as it had before. But with real incomes dropping, and the costs of necessities like food, health costs, and even college/university tuition fees all soaring, the only way to keep going as before was to borrow more. You might see this as a moral failure, but I think it's more accurate to view it as an ongoing struggle to stay afloat when the boat's sinking.

The "living beyond our means" argument suggests that the answer over the long term is for families to become more responsible and not spend more than they earn. Accordingly as if on cue, the preachers and imams in mosques will pontificate about being extravagant. They will harangue the public that to spend beyond our means are indications of moral depravities.

The real answer over the long term is to restore middle-class earnings so families don't have to go deep into debt to maintain what was a middle-class standard of living. And that requires, among other things, affordable health costs, maybe tax credits for college tuition, good schools, and an energy policy that's less dependent on oil, the price of which is going to continue to rise as demand soars in China, India, and elsewhere. In other words, the way to make sure we don't live beyond their means is to give them back the means to keep their incomes.

People never learn that the means include better education so that they acquire skills and become more competitive, better management of the economy, disciplined budgeting etc. The people tasked to moralise on us about being spendthrift and so on just refuse to understand the public’s predicament. But then as the American social critic, Upton Sinclair used to say: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"