Thursday, 23 July 2009

Money - Like Music - Is Better Shared

Here are my notes/thoughts from a really interesting discussion that Bruce Davis of Oikonomics led last night, entitled "Finance is like the music industry in the '90s". Apologies, if I have misrepresented anything. Corrections welcome. Thanks to Bruce, and Thomas Barker for organising.

As individuals we actually share money, rather than 'consume' it. So we prefer to withhold it from those we perceive to be 'taking' our money and not sharing in return. Government and banks would fall into that category. Savings are perceived to be at risk, and not 'solid', even with FSCS guarantee.

We agree the terms on which money is shared or used in context, and that in turn may give it a very different meaning to the users. On that basis, "money" is not a static concept, but a dynamic (though it is basically useful as a means of showing individual contribution, or as a store of value).

Some people view a loan as a cash float or a credit, rather than a debit or debt - e.g. a student loan. This is obviously frustrating to those with a traditional or accounting based view of money, but has to be grasped to communicate effectively. Focusing on our use of money, rather than its value becomes instructive. Trials have shown that if you remove the interest rates from the outside of a bank branch, footfall at that branch increases. Maybe the FSA and the OFT should focus more on the responsible/irresponsible uses of money, not advertised rates and other indicators of 'value'. Responsible lending/borrowing initiatives are the tip of the iceberg, since there are many other uses. On this basis it seems right that there is no usury cap in the UK, since the contextual use of the money, not the rate alone, is key.

It is perhaps worth considering that money in very old economies, like the UK is customary, not created, as it is in newer economies, including the US. In the UK there's a tendency to feel it's somehow wrong to borrow, so we hide or ignore debt. This makes for worse overindebtedness, whereas making debt visible leads people to try to pay it off.

Peronally, we don't like being 'targeted' as 'consumers'. We prefer to be in control and demand products for our own reasons (which may change). On that basis providers should allow consumer to shape products.

It's important to demystify the various uses of money as a means of opening up its uses to people who may feel excluded by complexity and therefore not use or share money to theirs and others' advantage.

Bankers' view of money has shifted in line with Greenspan's admission that his assumptions about the efficiency of markets was wrong. As a result banks no longer trust in the concept of sharing money and and are hording it rather than lending it.

Benefits recipients might feel more encouraged if the benefit or pension is styled as money or an investment in them personally, or an attempt to provide capital, rather than merely 'care' which gets taken away if they find work or another source of income. There is a disincentive to return to work in that it takes so long to get back on benefits if you fail. Yet trial and failure need to be encouraged for low income earners, like any other form of entrepreneurship. Styling unemployement as a social issue closes off the economic, or entrepreneurial path out of it.

Some risk is good, whereas our nanny state is committed to removing the risk from everything we do.
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