Savings...and Loans

16-March-2005 | Ron Pickrell

[pickrell]

One of the seemingly minor, yet important differences between the Judeo-Christian culture which predominates in the United States, and the Islamic culture which saturates the Middle East, is that of the perceptions and prohibitions concerning investment and returns.

As an example, in the United States, nearly everyone who works requires reliable transportation to secure that employment. Businesses and homes are zoned into separate areas, and the distances can extend into many miles.

But young persons first entering the workplace, who haven't yet secured a good job, and haven't had the time to even begin to accrue savings, find that they need a vehicle "up-front" to even start the interviewing process! Buses run only certain routes at certain times, and employed, car-owning friends often can't spare the time away from work to act as taxis.

Many tap Dad and Mom to borrow enough to buy that first car. But many haven't that option. Mom and Dad may be in somewhat of an uncomfortable financial situation themselves, and unable to loan the money.

This is where the ability to borrow money commercially, even if necessary through a higher-cost finance-company loan, can allow a person of little economic means to "rent" the money necessary to purchase a tool, such as the vehicle, which will then begin enabling the person to earn much higher amounts of money than he or she could from simply settling for the local grocery-bagging job.

And by no means is this concept limited to vehicles. A far stronger analogy lies in the vast number of persons young and old, who, over the last hundred years and further in this country, have borrowed amounts of money necessary to finance tools, machinery and working capital. It is not too much of a stretch to define America as the place where all is possible.... but only for those with the sheer grit and dedication to tough out the hard times, those armed with the preparation and knowledge to construct from scratch their various businesses, and- critically important to it all- those with sufficient capital to survive the ritual trial-by-invoice period. "You can be anything you want to be... but you gotta be willing and able to pay the price..."

It must be realized that, as little as we understand of the people of the Middle East, so they almost certainly have misunderstandings about us. They gather their news from American network television via satellite, which has successfully implied a false reality that only the rich grow richer, and that if you are born into the lower-economic-strata, you cannot ever hope to prosper in business or career. You can only hope to hit the jackpot, by litigation or by wager.

And they have reinforcement to that belief. Under strict Sharia law, as we understand it here, the payment and acceptance of interest on money borrowed is apparently forbidden. What better for them to believe of a distant land than the reality that controls their own lives!

Many of us believe that this proscription of "interest" will, by itself, so cripple the development of an Islamic middle class, that the culture bound by it will find the walls separating the well-to-do and the peasant classes are forever impenetrable. No emerging wealth is possible for the majority of a culture that is deprived of the ability to raise and thereby utilize capital.

Certainly nearly everywhere in the Western world, investors can be found to expand growing, and promising start-up businesses; but this presupposes that the period of months or even years of initial development necessary to construct the shell of the investment opportunity has already taken place. Without funding, without tools, this rarely will happen.

Are some better advantaged than others? Sure. Some basketball players making millions have much more talent than Fred does. This is a matter of facing the realities of life, rather than making excuses for himself. Fred also didn't have a rich Daddy, and wasn't an alumni kid at Harvard. But he buckled down and worked with what he had. His son Adam will have it easier, since Fred worked so hard to give him a better chance, but Fred sometimes finds himself wondering... whether that is entirely a good thing?

So do many.

But a true opportunity society places into an extended hand a tool... instead of a sandwich. Effort pays. Excuses cut about as much ice as a soap hacksaw, among those who have risked, sweated and sacrificed for their families.

But even for the most dedicated entrepreneur, that crucial starting capital can mean the difference between a reasonable chance of success, and an inevitable failure.

Our society has benefitted from an established framework of business laws that offer at least some measure of protection for the investor. These laws weren't dreamed up as an evil or quixotic chance to simply stick it to the bankrupt person. These laws arguably are one of the cornerstones of capital formation.

Money can be rented, or else acquired by trading equity, (ownership of some portion of the business venture). Selling equity usually occurs much later in the business cycle, however. It usually still comes down to borrowing the money.

Societies in the Middle East have inexplicably and artificially separated allowable "profit" from unallowable "interest". This has been a crucial error, in the view of us armchair economists. The distinction is artificial and the product of incomplete understanding of business dynamics. It is also contributing to an explosion of poverty, through the mis-application of what might appear to be a benign principal. It's effect has been to choke off any possible availability of investment capital.

Any society thus constrained will tend to consist of a certain number of skilled workmen, individually practicing their craft and locked into a perpetual, medieval, low efficiency economy... and the rest of the peasant supplicants subsisting on alms from the elite, or handouts from the State. The few fortunate craftsmen will acquire simple tools using what can be afforded after feeding the family.

This doesn't imply that the subjects in the kingdom are stupid. Many fine engineers, teachers and professionals may issue from the schools in the kingdom, or be fortunate enough to attain university time outside of the kingdom. In fact, they may put a good many of our students in the U.S. to shame, as the preciousness of the opportunity will be apparent to them!

But they necessarily will be few, and their opportunities will always be brightest if they can emigrate to a country with a modern economy.

The vast remainder of the subjects of the kingdom/tribe/region will survive at the mercy of the elite, in whatever trappings he/they wear; be it the robes of a royal family...or the uniform of the strongman. And as such the subjects will remain forever unequipped to escape into a market economy, driven by investment and return. This is because the "maximum leader" is not stupid, usually.

The power of the dictator will consequentially magnify into absolute control over his subjects. The technique is an old one, that of scattering grain on the ground in front of the peasants, much as we learn to control our chickens here. When you utterly control their sustenance, their passivity is assured. When monarchs/strongmen have control over national resources, such as oil, dynasties will last generations, if not hundreds or even thousands of years. When each moment of peace in your life flows not from a Bill of Rights, but from the capricious whim of the dictator, freedom becomes a wistful thing that only those Americans enjoy....

Our schools- and theirs- should be teaching that that Bill of Rights was paid for in blood, by the loss of many bright futures. We may not have the right to insist that others fiercely claw out and defend the same freedoms for themselves, as we have been gifted with by the sacrifices of our armed forces, but we should try to make the youth of the world aware of the cost of such freedoms.

The world has witnessed in Iraq the fierce resistance of the priveleged clans to sudden loss of their exclusive control over the peasants. This oil money... is life and death to the "plantation owners", and has been horrifically contested. Unfortunately, as the original gang is defeated, if the oil wealth is eventually distributed once again as welfare, even if fairly at first to all citizens, it will merely perpetuate the fealty relationship between the subjects and the new elite, whoever they might be. No society has survived the corrosive effects of welfare.

But, it is a chance that must be taken, and not all chances come up "sevens". Sometimes snake-eyes are rolled. This is life. But what a chance has been bought by young Americans' sacrifices.

Only a truly great nation like the United States will spend precious blood on a chance, one chance in however many, to free millions of foreigners from their peasant chains. Only our Marines and the G.I.'s are those kind of men. Only the citizens of this country can support them enough to make the hopeless around the world abandon their despair even briefly, to dare to hope that, "Maybe... if things get bad enough- maybe the Americans will come here, also..."

Maybe we will take up the cup of being the world's last, best hope that there is some outer limit to the cruelty man is allowed to inflict on others. Nations have set worse challenges for themselves.

But we can't be everywhere, nor should we. We must perform triage. On the battlefield some wounded men are left to wait, since their wounds are less serious than others. Other men are left untreated, since no ministrations by mortal man have any hope of saving their lives, and prolonging their agony will only detract from care that could be given to those who can be saved.

Only by exercising what the ignorant would call this "savage" and cruel calculation, can the greatest number of lives be saved in any time-critical situation of carnage. This is the hard reality of triage, and it's past time we all faced it.

This triage must also be practiced in the ongoing war on terror, and the greatest threats to our nation must be sorted out and faced rationally. Many argue convincingly that it is actually counterproductive to try to help everyone, since only the efforts of the indigenous people can truly solve most problems. And so we pick and choose between threats that can wait, threats that we can do something about, and threats which, because they were ignored during the dissipated and self-absorbed Clinton presidency, are therefore now beyond simple solutions.

And an important additional principal applies.

We cannot change the beliefs and practices of other cultures, and we have no intention of attempting to do so. Nor should we, anymore than we would welcome the imposition of French law upon us. After all, who wants to degrade themselves to THAT extent...

A very real risk will be run that a Wilsonian vision of interference in the internal affairs of other nations may take hold. We will need to agree on a national strategy that makes rational sense, and realize that precipitous response to some suffering and death, could trap us into another Somalia. Adults will need to talk frankly, and persuasion allowed to work it's will.

But we clearly need to at least strip away the veils which have left so many Americans puzzled about the differences in the developments of the two cultures. Why are we the richest nation and they the poorest? Forget the liberal kneejerk pablum about our being robber barons, and either "not lending enough to the Middle East" (in Tuesday's report), or "lending too much to the Middle East" (in Thursday's report).

We'll press the "mute" button for now on the noise generated by Brokaw, Williams, and the rest.

Let's examine "lending" itself.

We regard with curiousity the perceived differences between the acceptable "wages"... and the forbidden "interest", as practiced abroad in those countries. The United States has a huge middle class that, instead of immediately spending all of their wages, elected over time instead to save some portion of those wages. It is our tradition to understand the reality of the money that is deposited in the savings accounts, and thereby is made available for homes and business startups.

If Joe earns a certain sum and saves part of it, he only enjoys the benefits, only receives the immediate rewards of goods and services, of that portion which he spends. He voluntarily defers the "enjoyment", the benefit of the money he didn't spend. These are wages that are essentially postponed.

When he and many others pool those postponed earnings together into the local Savings & Loan, it makes it possible for Tom and Pam to borrow that money and buy a house. When Pam makes out the house payment, she is sharing her profit with the ones who made the loan!

Think about it. She has used their money to avoid paying rent on someone else's house, and so is enjoying the shelter and safety of "her" house immediately. She also is building equity. Should she gain all of this for her family, and refuse to share anything with the people who made it possible? If not, why should they lend her the money? It is their work, their deferred wages, that enable Tom and Pam to begin building equity.

If Pam, instead of wanting the money to buy a secured investment, (one with real worth as collateral), decides that she instead needs a face-lift and better clothes, the trustees of the Savings & Loan will rightly deny her the use of the money. (We assume...)

America's savers- those responsible folks who work hard and spend carefully, so that they can, when the time comes that income finally exceeds expenses, elect to save some money rather than frantically pile up yet more new and pleasurable expenses- are the bedrock of the constant expansion and improvement in living conditions that we all enjoy. They have built the most prosperous civilization in history.

Unfortunately, an increasing number of American borrowers, (and those needlessly cashing out equity in their primary investment tool- their homes), seem to have lost the clear understanding that previous generations had, as to the differences between capital loans, and Florida vacations.

A cookie is not a hammer. The hammer will be there tomorrow to do more repairs. The cookie will settle around the belly and, well, also be there forever... (unless we get back on the exercise bike for THREE BLOODY HOURS!), but will enable no progress in the future.

Fundamental understandings are being lost to an increasing number of Americans. Investments and luxuries are different animals.

Our parents only hesitantly borrowed money, and usually only for those real-property investments that repaid themselves. Increasingly, however, their children seem to regard the credit card not as a means to procure tools, but rather to enjoy now what they can't afford, and worry about paying for it "later". Television has convinced them that the boredom that they feel is actually "crushing stress", and that the only responsible thing to do is... "Daytona Beach for vacation, again!" When the bills come in, they will learn about stress...

Sadly, they never bother to ask themselves why, if they didn't have the money to afford the vacation in the first place, instead of borrowing it- exactly how they would pay for it afterwards on the same income, to say nothing of also paying the mounting interest. It just seemed to easy... when they did it on T.V.

Does this mean that credit is basically a bad thing? Of course not. Neither is a hammer. It all depends on the use to which it is put.

But try building a house without a hammer... or the advance funds to buy lumber.

We can learn from other cultures. Perhaps we should approach credit more carefully.

But, (and you will never hear this flip side question from the liberal media), do they not have much to learn from us? We have amply demonstrated to the world that societies having the bulk of their national assets and income tightly controlled by the state, and used to enforce subservience can never, ever, hope to match the vigorous growth of a society such as ours, where capital flows to those willing to use it to produce desirable goods and services.

Leftism is engineered to produce dependence, while free markets produce instead increasing standards of living. The peoples of the Middle East will have to abandon many of the concepts which have kept them in chains for so long, or else find themselves once again sliding into the grip of the "new" elite. They must resist the corrosive poison of the welfare state which so nearly brought this country to ruin in years past.

They need to start businesses, which will provide employment for those unequipped to run their own business. Real jobs, and not government handouts. To do so... they'll need to borrow money. And to do that... they will need to engage in a national dialog about "interest" payments.

It will be a hard task and something that no one can do for them.

We did the dying... and they will need to do the living. It's what we bought for them- a chance for them to decide.

As the Age of Hatred eventually passes, and the blood dries, and the dust settles, all men will have to determine for themselves what will be in the best interests of their children, and their children's children.

I hope we teach our children enough so that they may choose well, and understand the world around them so that zealots and strongmen lose their grips on the future forever.