Friday, December 26, 2008

Credit Crunch -- The Game and the facts

Via Coming Anarchy we learn of a board game called "Credit Crunch"created by The Economist Magazine.
The writers have invested (to coin a term) a lot of creative energy into this most recent echo of a time when Monopoly was a pedestrian reply to the Great Depression.
Knowing their audience, the editors have made the game available on line PDF, with easy to follow instructions.

How it works

Players start with 500m econos each. One player doubles as banker.

Players move round by throwing four coins and progressing as many squares as they throw heads. If a player throws four heads, he moves forward four spaces and has another turn; if he throws four tails, he throws again. When a player lands on a + square, he collects money from the bank; equally, when he lands on a minus square, he pays the bank.

The aim is to be the last solvent player. In order to achieve this, players try to eliminate the competition. Risk cards encourage players to pick on each other.

Players who cannot pay their fines may borrow from each other at any rate they care to settle on—for instance, 100% interest within three turns. They should negotiate with the other players to get the best rate possible. Players who cannot borrow must either go into Chapter 11 or be taken over.

Players may conceal their assets from each other.

Got that? "Risk cards encourage players to pick on each other."
Neat. This might be more fun than paintball.

Problem is, it's too close to reality for me to find amusing.

The Bernard Madoff Scheme is no accident and it is not funny. It is a reasonable and predictable result of how most people understand economics, not called the "dismal science" for nothing.

Without putting too fine a point on it, I would like to see more big shots taking a look at how their less-accomplished social underlings get along in the world with more limited assets.

It's called the "cash economy."

Phrases like "living hand to mouth" or "paycheck to paycheck" are condescending descriptions of how poor people live. Such phrases carry undertone suggestions that anyone who lives like that must be either unmotivated, unwilling or too unintelligent to do better or made bad choices resulting in a lower station in life.

But there is a small but solid core of responsible people who do not fall to the bottom because of quaint notions of thrift, saving and responsible stewardship of limited assets. I like to think of that group -- my group, by the way -- as the true "middle class." That term has been widely and carelessly used for years. And until this most recent election it has been left undefined.

One point in the presidential debates the candidates were asked to define "rich."
When the dust settled, it was Barack Obama who was brave enough to put a number on it: $250,000 a year.
For debate purposes it was a handy benchmark, a point below which voters who earned less than that amount annually could expect no tax increase, and above which they could look for increased taxes.

But in a way the quarter-million dollar benchmark is not a bad way to define the middle class if we take it to mean net worth instead of earned income. Net worth is how most business transactions are conducted because it takes into account not only how much revenue is flowing but how much reserve there might be in the event the cash flow slows down or pinches off altogether.

I would like to advance an argument for a cash economy instead of a credit economy. With the exception of a relatively small mortage we have been living on a cash economy at our house over thirty years. As a result we don't have a lot of the "extras" that many of our peers enjoy, but we have the satisfaction of knowing that at this moment of financial instability for what looks to be the whole world, we don't feel threatened. In fact, if necessary we have enough space and resources to house and feed a couple of our children with their families should the emergency arise.

Thankfully, that is not a threat looming on the horizon. Or maybe I should say "our horizons." I know it is not so for many others.

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