The Proper Care and Maintenance of Credit

Along with the rest of the world, America is in a credit crisis. The roots of the problem may not be financial as much as a fault in our character. Douglas Brooks from the University of Rochester said there are two reasons for the decay that takes place in society: taking credit that isn’t due and not giving credit that is due. He was purposely conflating one of the foundations of finance, credit, with our failure to acknowledge the actual impact of our actions. We overestimate ourselves and we underestimate others.
The proper use of credit is indirectly covered in the new book Outliers by Malcolm Gladwell. He suggests that there really is no self made man or woman, and the achievement of great success by people has many causes, including luck, good timing and lots of help. There are pockets, associations, and communities of people who claim to be self-reliant and responsible, but in reality, as Isaac Newton wrote in a letter, “If I have seen a little further it is by standing on the shoulders of Giants." This is a great man giving credit. Don’t we like being around people like this? Grateful, humble and encouraging. I’m just saying. Many, whether they admit it or not, have also relied on others over a long period of time, and the myth that they’ve done it all themselves is starting to burst at the seams.
What are some of the ways people use and misuse credit in their lives? The easiest example that is not related to finance, is sports. A team wins a game, perhaps by a lucky play, or a bad call by the referee. The winning team however, takes full credit for the win. Later the same team plays another game and gets thoroughly embarrassed. The bottom line: they took credit that was not due and did not give credit in the proper measure to the other team. In a word, they were not that good. At least not as good as they thought. There is a saying that if you want to be the best, train like you’re the second best.
Sometimes the failure of credit can be deadly. Nobel Prize winner Richard Feynman was involved in the investigation of the Challenger disaster. One of the problems that he discovered in the project as a whole was “the exaggeration at the bottom being inconsistent with the reality at the bottom”. Here was the misuse of credit on a grand scale. Not to be outdone, politics is an exceptionally rich environment for the misuse of credit. Those who can successfully take credit for the good times, tend to win, even if further research shows that they are not responsible. It is also common for a politician to take credit for legislation that they fought against. Paul Krugman, the recent winner of the Nobel Prize for economics, has been railing against Reagan economics for many years, only to be rebuffed by conservatives who keep pointing to the rise of the stock market as a sign that good times continue to roll. Unfortunately things are continuing to roll, just downhill. Recent news has been dominated by the failure of many banks, as well as the pending failure of the big 3 automakers.
Another current topic is the legendary success of the “surge”. Digging deeper, we find a study done by John Agnew at UCLA, showing that most ethnic cleansing had largely been finished before the surge started. By the time the surge started, there was no more reason for the surge. However, there was no shortage of people waiting to take credit for its success. What do we have to show for all of this incredible success on the part of ourselves, our politicians and our financiers? Record unemployment, a faltering economy and two endless wars. I’ll make a deal. If someone can help sort this out and get us back on track, I’ll give them credit.
Thank You
Ron Brown