My Word's Worth: an occasional column by Marylaine Block

vol. 6, #8, April 8, 2001

CREDIT RISK

Often, I think, big changes creep up on us invisibly, and the things that change us most may seem small and insignificant at the time. The printing press, for instance, is a small thing that changed us from a communal culture dependent on idiosyncratic memory and storytelling, to a culture of radical independence, dependent on documents and linear thought. Without our noticing, the universal credit card has also changed our world, and altered forever the way we do business, the way we spend, the way we live, and the way we think.

I realized this when I was re-reading the old Arthur Hailey book, Hotel, which was written in 1965. I was struck by the fact that at that time, this business which catered almost entirely to strangers had no easy way to be sure its customers would pay their bills. Presumably travelers would have had to walk around with large wads of cash, because merchants wouldn't have wanted to take the risk of accepting their out-of-town checks.

When universal credit cards gave merchants a guarantee of payment, they made it possible for complete strangers to do business with each other freely. Merchants no longer had to decide whether somebody was trustworthy, because now they only had to trust the card issuer. That one small change has made it possible for rental car companies to let people they don't know anything about drive off with their cars, for catalog and internet companies to ship goods to people they've never met and have no reason to trust, for people to travel without the fear of being stranded penniless in a distant land. It's entirely possible we wouldn't be talking about a global economy now had the universal credit card not come along in the 1960's -- this substitute for personal trust, this guarantor against risk, may have been an essential precondition for the global economy.

Of course the corporatizing of trust has had some unintended effects on us cardholders, as well. Before credit cards we were pretty well limited to taking out loans and buying on credit in places where we were known. That may be part of the reason we stayed put more back then, living in the same towns for longer periods of time. It was important to build a reputation for paying your bills on time. Bankruptcy was the ultimate disgrace, because you were not only ruining your credit forever, you were stiffing people you knew, ratting out on bills from people who had personally trusted you.

Once we had the magic pieces of plastic, though, it was less necessary for us to be known and respected, easier for us to move on, from job to job, town to town. Our trustworthiness was now solely between us and our card issuers, who didn't even care whether we could pay in full, as long as we sent in the minimum payment every month. Whether our unpaid balances were $50 or $50,000, our credit ratings remained excellent as long as we kept meeting that minimum payment.

Truth be told, our card issuers didn't much WANT us to pay the balance in full, because their business model was making money on the exorbitant rates of interest they charged on our balances. (The normalizing of usury was another of those changes we barely noticed -- we just took for granted the payment of 18% and up interest on our charges.)

But credit cards also separated the moment of purchase from the moment of payment. Before we had the magic plastic, we couldn't buy anything without making sure we had enough cash in our wallets or in our checking accounts. Credit cards made it easier for us to buy whatever we wanted, whenever we wanted it, and less necessary to think first, about our income, our bills, and upcoming expenditures. They made it much harder for us to make a distinction in our minds between WANT and NEED.

Of course credit cards didn't do that all by themselves. At the same time universal credit cards were gaining acceptance, ads, and the lifestyles we saw and envied in TV shows and movies, were telling us that the things we owned defined us, that class was revealed by the elegance and expensiveness of our purchases. Why go to the public swimming pool when you can have your very own personal pool? Why go to the park when you can build a playground in your own back yard? The message was omnipresent in our culture: designer jeans, Armani suits, home theaters, SUVs were basic necessities, AND you didn't have to wait until you had the money in your account to buy them.

Of course, since it was so easy to spend thoughtlessly, a lot of us threw money away on stupid, pointless purchases -- one woman whose husband was desperately trying to rein in her shopping had spent thousands of dollars just on hair bows for her daughter. The money she blew on stupid stuff was not available for the big things they truly needed or wanted, like savings for their children's education.

What made us feel REALLY poor, though, was paying taxes. Jeez, we barely had enough money to keep up on our minimum balances and here our government was trying to squeeze blood out of a stone. Our politicans were amazingly responsive, cutting and cutting and cutting government expenditures. No mind that what they were cutting was meat inspection, dam and bridge repairs, public health services, maintenance of sewage systems and water filtration plants, weather forecasting, national parks, emergency medical services, schools, firefighters and police. They cut corners on public safety and shared public resources so they could give us the lean, very mean government and tax relief we wanted.

Eventually, of course, the bill comes due. We'll pay for those government cuts one way or another, perhaps with epidemics or dam collapses or mass food poisoning. As for the personal debts, way too many people have gotten in over their heads, using one credit card to pay off other credit cards, until their minimum payments exceed their income. Total credit card debt in America has skyrocketed, and our national personal savings rate, never very high, is now below zero. Credit counseling and bankruptcy law have become big time businesses.

None of this could have happened without credit cards, because without the third party guarantee of payment, who would have let us buy all this stuff? They wouldn't have let us walk out the door with our armloads unless we paid up front, or unless they knew us and trusted us.

And if we hadn't been walking out the door with armloads of stuff, would we have had that miracle machine that has been the US economy for the past ten years? The betting on Capitol Hill says no, because they sure want to give us an immediate tax cut so we can get back to the full time job of buying stuff we can't afford.

It's such a little thing, that piece of plastic. Who'd have thought that without our even noticing, it would change the world?

NOTE: My thinking is always a work in progress. You could mentally insert all my columns in between these two sentences: "This is something I've been thinking about," and "Does this make any sense to you?" I welcome your thoughts. Please send your comments about these columns to: marylaine at netexpress.net. Since I've written a lot of these, some of them many years ago, help me out by telling me which column you're referring to.

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