Tuesday, December 19, 2006

Economics of Forgiveness

Can you believe the scene in Kuwait's parliament over the issue of loans?! What a mess! Well the issue at hand is the proposal, more like demand, for government to forgive loans taken out by consumers. If you're out of town dropping in please excuse the lack of logic! Such is the country we live in and its unfortunate that some members of parliament are the ones making such demands.

One would think there is a crisis in consumer loans repayment to instigate such demands. But no. It is documented that default rate does not exceed 2.1% which is no crisis by any measure. So what is the fuss all about?! What good will come out of the government paying down consumer loans in excess of 4 billion KD ($14 billion)? Short term interests of member of parliament and consumers alike at the expense of the long term interest of the country and the future of its citizens.

According to Kuwait Central Bank report such measure would cause a number of severe negative economic impacts. One such impact is a hike in inflation. Another is encouraging consumerism. Fairness is another issue especially for those who did not borrow. Today we are blessed with healthy oil revenue, but this is no excuse for depleting the wealth that should be shared with future generations.

Finally a philosophical note. If forgiveness is a positive trait in a moral sense -that's what all religions teach right?- why would it be so bad in this economic sense? Think about what forgiveness leads to in both cases. In a moral sense when you forgive someone -who has wronged you- in essence you release yourself from retaliation. You set yourself free in a way. You become independent -you are no longer dependent on certain behavior or action to take place. But in an economic sense the exact opposite is happening. Forgiveness -as also witnessed in some communists systems where the country is the sole provider- leads to dependence. Dependence on the system to correct your mistakes and pick up the pieces you dropped. See forgiveness in a moral sense leads to independence and personal growth, while in economic sense it only breeds dependence and stagnation. Those are my two cents for the day!

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