some guy in lebanon

Note (8/19/09) – This post has been getting a lot of attention recently due to a link from a blog called ‘Dances with Klingons‘ – So I wanted to add a remark. Something that I didn’t understand when I posted this article, is the degree to which it is possible, if you have no dependents, to clear your debt quickly by working in a foreign country in the developing world. An American salary in Africa, Asia, Eastern Europe or the Middle East will allow you to send literally thousands of dollars home to pay for student loans, credit card debt, etc. If you can make $35,000 a year in a country where it only costs about $1,500 a month or less to live, this is a serious possibility. I foresee an age of “American Remittances” fast approaching. For more on this, see my posts “The American Diaspora” and “The American Diaspora – Part 2: The Economic Consequences of the Bailout.”

The vast majority of Americans (and citizens of the West in general) will awake soon, if they haven’t already, to staggering debt. Let’s assume that the average American’s debt load is similar to the average Public Debt per Capita, roughly $30,000. That seems about right, given that average credit card debt, when you check around the web, is reportedly between $8,000 and $9,000.

So, let’s assume likewise that that debt is relatively sustainable – That the average American makes enough money to service this debt but that it is crushing. That the average consumer probably spends between 5% and 20% of his or her yearly income on servicing their debt – No matter what, that is a debilitating effect.

But even in current economic conditions, it is sustainable. Then again, we’re talking about averages.

What about the folks who are up to their ear drums in debt, $80,000, $90,000, in debt, much of which is in high interest credit cards? Does anybody believe they’re in much of a position to pay it down without winning the lottery?

Well, it seems to me there is a fairly simple solution: Communal Debt Repayment. Consider:

Let’s say that a person makes, after taxes, $1,500 a month. Not a lot at all – In a year, that person makes $18,000 after taxes – so we’re talking about someone who lives below the poverty line and makes minimum wage in America. This person is poor – But then again, in the brave new world of the past two decades, this person was likely eligible for many predatory credit cards with outrageously huge limits. Let’s say this person now owes $60,000 to a variety of credit institutions.

Let’s also assume, for the moment, that our deeply in-debt minimum wage worker, we’ll call her Jane, spends $500 a month on her rent, and $250 a month on food. She has a cell phone bill of $40, pays a car loan of $200, has other various expenses, and then sends a check for $200 to the credit card companies. Thanks to a number of factors, namely her monthly food budget and her rent budget, along with her “other various expenses” and her car, Jane will pay off her credit card company sometime in the next millennium. She will never accumulate enough to get out of the hole, and she will never have enough to retire. The debt will stay with her forever.

But imagine an entirely different story line: Jane enters a “get out of debt” commune. Jane surrenders her entire paycheck each month to said commune. Jane eats breakfast and dinner at the commune, and is given a packed lunch to take to work. At this commune, everything is bought and prepared in bulk – This isn’t some hippy commune where there are full-fledged farms, but some essentials are produced on sight – There’s a garden, for example. By and large, however, the commune harnesses the power of bulk buying and bulk living – Jane signs a contract with the commune – She sells her car, cancels her cell phone, etc. For a year, she will live at the commune, carrying out her day to day and working as usual. At the end of the day, when she returns home, she has a guarantee of a room, all the food she wants, and shared entertainment resources. The commune also employs a fleet of energy efficient vehicles to drop her off at work and take her home at the end of the day.

At the end of every month, the commune pays her credit card company her entire paycheck, minus the expense of hosting her. Not only does she benefit from food and housing costs dropping dramatically thanks to shared resources, but by seeding her financial life to the commune, as part of her contract, she has, essentially, no cash on hand, ever, which means she is incapable of frivolous spending. The commune has arrangements for bulk purchasing of clothing, basic medicine, etc. should she need it – again, this keeps costs down considerably, and lessens her identity as a single-buyer.

At the end of the year, Jane assesses her financial position – Whereas she might have paid the credit card companies $2400 ($200 x 12) in her old life, this year she was able to pay them $1150 per month, a grand total of $13,800. In one year she has managed to level 23% in immediate debt, plus sidestepping mountains of future interest payments. In return, she has sacrificed her American consumer identity, and an extraordinary amount of privacy (communal living guarantees both), for one year. At the same time, the community that she has lived in for a year has radically improved her awareness of the importance of fiscal responsibility, as well as the inherent value of communal purchasing power versus individual purchasing power.

The communal aspect is not radical – what is radical is the pragmatic capitalism inherent in this scheme. There is no “communism” per se here – this is more like intensive financial rehab – “Spenders Anonymous.” It is not communism for communism’s sake, but instead a realistic remedy for Jane to get out of what would otherwise be life-crushing high-interest debt in under five years without declaring bankruptcy while sustaining a life at minimum wage.

The primary assumption here is that the commune could drop Jane’s overall life expenses from $1300 a month to $350 a month. The inherent problem with this assumption is that though this is a fair assumption when you factor in that Jane will no longer own a car, a cell phone, will have all her entertainment at “home,” and will pay her rent and food in conjunction with dozens of other people, that doesn’t leave a lot left over for profit. Hense such a commune would have to opperate as a no-fee not-for-profit, which means the only benefits it would provide to its management would be cheap housing and food.

At the end of the day, there are several important elements to this idea:

1. Jane has to work, but she does not have to focus on getting raises to pay her debts. She need only continue to work.
2. #1 does not only apply to Jane but to everyone else participating in the commune, including its management – no one is getting a free ride
3. The agenda of such an organization is inherently capitalistic, not communistic – Jane has performed poorly in a capitalistic world, and therefore is essentially going to “capitalist limbo” where for a time she will surrender her rights as a free consumer in order to pay off all or a at least a manageable portion of her debts. In the meantime she will learn valuable lessons in frugality and savings.
4. This is a win-win solution for everyone involved, except perhaps the credit card industry which had hoped it would take Jane years to pay her debts, and for Jane’s identity as a consumer

Imagine then, if Jane had made $40,000 a year, banking therefore approximately $2,600 a month after taxes. Under the same operational conditions by which Jane’s monthly expenses drop to $350 a month, her monthly payment to her debtors is $2,250. At $27,000, Jane is capable of being debt-free in just over two years, eliminating years of crushing interest payments.

There is no other solution to America’s high-interest debt problem. Even if Jane got a second job, her monthly payments would only increase by a few hundred dollars a month at the very most, not by over a thousand. A second job would also increase her transportation expenses, and if she regularly consumes “entertainment products” to cope with the increased work load, i.e. cigarettes, candy, alcohol, etc., the second job creates new costs as well.

In the scheme I’ve laid out above, Jane might not have a personal life in the standard way of thinking about a personal life, but then again if she got a second job she wouldn’t have much of one either. The difference is ultimately that Jane is able to get plenty of sleep and not degrade the quality of her work at her first job, making promotion more difficult. Jane’s sanity is intact and she knows exactly when she will be debt free. The people running the commune are able to tell her every month how much longer she has to go, and she can quit at any time.

I am not an advocate in giving up personal freedoms, and I believe that buying is an important personal freedom. However, people like Jane all over America and Europe have been shackled by a terrifying Chimera, large amounts of high-interest debt. Only by giving up the personal freedom of consumption for a short while will Jane regain her opportunity to be a free-agent in the market system.

The Dao that can be experienced is not true;
The world that can be constructed is not true.
The Dao manifests all that happens and may happen;
The world represents all that exists and may exist.
-Dao De Jing