[OUTLOOK]Forgiving cannot be debt policyOne of the greatest inventions of the 20th century was the credit card. Like other innovations of the 1900s, such as the atomic bomb and the digital computer, this little piece of plastic holds its place in history.
Or so says Daniel Bell, a scholar of post-industrial society. What Mr. Bell foresaw was a “credit society” symbolized by the credit card. The hardware of the credit society would be credit transactions and installment sales, and the essential software, the trust between the two parties of the transaction.
Consumption is modern man’s dream.
Stability of livelihood and the enhancement of welfare are measured by consumption. And a major driving force behind consumption is the brilliant idea of installment payments.
How many of us are able or willing to pay the lump sum necessary to buy a house, car or electronic appliances? Sales of durable goods are based in a large part on installment purchase plans.
Installment plans are loved by companies because more products are sold. They make households happy because less money needs to be spent on a single occasion.
If the economy is to be saved, everyone must buy, buy, buy! That is John Maynard Keynes’s economics in a nutshell, and Mr. Bell sprung from the core of that nutshell with his praise of the credit card but also surprise warnings about its misuse.
Too bad a lot of people only remember the praise part and not the warnings.
Ever since the financial crisis in the late 1990s, our economy seems to be inflicted with a strange infection. The government, in an about-face, preaches that consumption, not frugality, is the way to serve the country and financial institutions are practicing this new religion with fervor. I myself discharged my patriotic duties by advocating in lectures that encouraging consumption is one way out of recession. The situation, however, seems to have gotten out of hand. What country in the world issues credit cards from makeshift tables in the street and lures people to apply for credit cards by giving out gifts? What kind of lunacy possessed us? Whatever it was, it is back with a vengeance; we are the children of a momentary madness that all of us partook in. There are more than 3 million credit delinquents in Korea. When one-sixth of the economically active population are behind on payments, something is seriously amiss. Our society, it seems, had everything to make it a society except a good sense on using credit.
That is why Mr. Bell implored that a change in morality must always accompany any other change in the world. In the traditional Judeo-Christian society, debt was “bad.” One never spent beyond what one earned. Of course, nowadays, we do not think of installment payments as morally deficient.
The boundaries of our spending now include not only what we have earned but what we will earn, or we think we will earn, as well. Credit cards are an incredible invention in that they make a debt seem not like a debt, even when we know that there is the nagging possibility that we might default. Consider the observation that the trick to installment sales is to avoid the word “debt” and use the word “credit” instead. While most people would take offense at being called “debtors,” they do not seem to mind being “credit loaners.”
The government recently announced that it would provide relief to delinquent debtors -- oops -- unfortunate credit loaners. It plans to readjust the debts of 810,000 people behind on installment payments with individual debt less than 10 million won by slashing the principal or extending the term of redemption. The government strongly urged the financial institutes to readjust debts gradually, according to the size and term of redemption, to clean up people’s credit.
The existing system of branding a person a delinquent if he is behind on debts of more than 300,000 won for more than three months is too harsh. Losing your job, a stay in the hospital and getting divorced are some of the everyday reasons that some people find themselves inadvertently labeled delinquents under this system.
The government’s intention to forgive minor offenses and save people from social disadvantages incurred by what could be a one-time mistake is understandable.
Some say the government has no right to interfere in the business between financial companies and their customers, but I agree with the advocates of this plan that this is a very special case.
The real problem is how to change the “software” of our credit society. We cannot ignore the considerable number of habitual delinquents who figure the government will get them out of their mess if they hold back for long enough. The Kim Dae-jung government also gave second chances to delinquents only to see their number rise. No one becomes a credit delinquent these days because they do not have the money to buy instant noodles or cough syrup. (The benevolent hand of credit does not seem to reach that far down.) We are extending our mercy all too easily in our belief that poverty is a sin and everyone is worthy of redemption.
But unless everyone is made to understand that debts are always meant to be repaid, the government’s unrequited benevolence will only encourage moral hazard.
* The writer is a columnist of the JoongAng Ilbo.
by Joseph W. Chung
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