Credit cards are obsolete. Is consumer debt heading the same way?

The technological history of credit.

Slate's Matt Yglesias, in a post about the effect higher bank capital requirements could have on the real economy, gives a brief overview of the changing nature of credit in America:

Once upon a time credit overwhelmingly meant business credit, which then expanded into the personal sphere primarily in the special case of houses and what you might call household investment goods (cars, large appliances). That then metastasised into the all-in culture of consumer debt and credit that we know from the past 25 years.

Yglesias' point is that high capital ratios will reverse that trend, boosting the price of consumer debt while making corporate debt cheaper. This, he adds, might not be a bad thing, "disproportionately encouraging business borrowing to finance investment while discouraging consumer borrowing to enhance consumption".

But what I find interesting is how that "metastasisation" of a relatively small field of debt into the widespread credit economy we now have was born. It was, broadly, a technological imperative, as the Financial Times' Isabella Kaminska points out:

The credit component in credit cards came into play because in the “old days” extending credit was the easiest way to transact remotely without the use of physical cash.

Any alternative back then would have involved waiting hours (if not days) for the merchant to call your bank, who would then verify who you were, who would then make a deduction from your account, who would then send an instruction to the merchant’s bank, whose bank would make a corresponding credit, who would both use different parties to clear and confirm the transaction. Sometimes by post.

It was basically much easier (from a velocity point of view) for a bank to guarantee to the merchant that you were good for the money by means of a piece of plastic. The transaction would take place and you would then owe the bank, whilst all the settlement processes continued on in the background. If you didn’t pay, it was between you and the underwriter bank. The merchant was covered. You were probably black-listed.

Initially, then, the fact that credit cards enabled people to freely and easily spend beyond their means wasn't deliberate — it was a by-product of the real aim, which was just to let people pay for things. It wasn't quite a bug in the system, because card issuers were always more than happy to let people pay off their credit card bills in instalments, racking up healthy interest payments in the process. But it was hugely important in getting the concept of borrowing to pay normal daily bills into people's heads.

Nowadays, of course, that technological imperative is nonexistent. Although they will take every possible opportunity to delay payments, squeezing marginal gains from the extra interest, banks are capable of transferring money instantly. At the very least, the fact that debit cards are now possible renders the initial rationale for credit cards obsolete.

Of course, if this apotheosis of the credit economy is something which is worth pushing back against, as Yglesias suggests, then doing so by just raising interest rates is about the most damaging possible way. People have got used to boosting their standard of living with easy credit, and until they can achieve the same standard without resorting to credit, making it more expensive to borrow could backfire heavily.

Credit cards. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Nicola Sturgeon. Photo: Getty
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Nicola Sturgeon's half-hearted "reset" is not enough to win back voters to the SNP

Election campaigners report that the doorstep feedback suggests the First Minister is now seen as aloof, with little interest in the average voter’s concerns.

In Scots law, under a charge of robbery, theft, breach of trust, embezzlement, falsehood, fraud or wilful imposition, the accused may be convicted of "reset". It’s not clear which of these particular terms Nicola Sturgeon had in mind this week when she used that word to describe her reformed plans for a second independence referendum. Fraud seems a little too strong. Breach of trust or wilful imposition are perhaps closer to the mark.

It’s been many, many years since the SNP has seemed this unsure of its footing. Fair enough: who in politics isn’t, these days? But the slow-motion car crash that is Scotland’s governing party deserves a prime-time slot all of its own. "The SNP has squandered what was an extraordinarily strong position," says a thoughtful observer from the opposition benches.

If Sturgeon’s authority hasn’t gone – and she continues to rule Scotland’s most popular mainstream party, both at Holyrood and Westminster – it has undeniably taken a shellacking. The aura of invincibility that surrounded the First Minister’s early years in power is no more, both within and without the SNP. "What struck me as she announced her 'reset' was that a woman who was often listened to in respectful silence in the past found herself being shouted at by Labour, the Lib Dems and the Tories," says a source. "There was giggling and mockery, which is new. She seemed diminished."

My own judgement is that the reset proposal, which amounts to little more than extending the deadline for a second indyref by six months to a year, will do almost nothing to woo back the half-million voters who deserted the Nats between the 2015 and 2017 general elections. In my experience, these people don’t want the referendum delayed for six months, they want it off the table. They also want the SNP to shut up about it, and they want to see the public services and the economy given full attention. That is the challenge they have set the First Minister in the four years left of this Holyrood parliament. In an enlightening article in the Guardian this week, Severin Carrell quotes voters from the "Tartan Tory" areas that recently unseated Alex Salmond and Angus Robertson. "Fed up with the SNP, simple as."

Fed up. Sturgeon’s greatest error – a charge levelled by internal critics – was to force and win a vote at Holyrood on the holding of another referendum, after the Brexit decision but before Article 50 was triggered. In the minds of voters already worried about leaving the EU and looking for what we might call strong and stable leadership, this merely confirmed the SNP’s monomania: that it saw literally everything as a pretext for independence. The step looked cynical, it looked rushed, it looked, well, desperate.

To be fair to the First Minister, she was playing a double game. Obviously, she supports breaking up the UK and needs to continually feed the beast that is the separatist movement, but she also hoped the looming threat of another referendum would give her leverage as the UK negotiated Brexit, perhaps to secure a distinct deal of some kind for Scotland. She was wrong. "Theresa May would show up for meetings with the various leaders of the UK’s nations, read from a script and then refuse to take questions," says an SNP insider. "The whole thing has been a shambles. The British government just isn’t interested."

This deliberate mutual misunderstanding is a problem not just for the SNP, but for the smooth running of the UK. Pre-devolution, a deal such as that struck with the DUP would have been discussed in Cabinet where powerful Scottish and Welsh secretaries would demand and usually emerge with some goodies for back home. Now, each nation is run by a different tribe, the relationships are oppositional and antagonistic, and no side wants to make things easier for the other. Britain has stopped talking to itself, and stopped trading with itself. We have spiralled off into our own mini-cultures, which often bear little resemblance to each other.

Ultimately, though, Sturgeon looks like the author of her own misfortune. Her tone in Holyrood as she announced the ‘reset’ was unapologetic and belligerent. There was no real humility or admission of error, and no sense that an indyref was in any way off the table. Election campaigners report that the doorstep feedback suggests she is now seen as aloof, with little interest in the average voter’s day-to-day concerns or in listening to them. Her team seem unable or unwilling to absorb this. "They’re still pushing far too hard," says one Tory source. "The only way I can make sense of it is that they’re playing it like a poker hand. They’ve come too far and feel they have no choice but to go all-in. But it’s a losing hand."

There are only two routes I can see that might, perhaps, make something of a difference. The first is a comprehensive reshuffle that brings some of the smarter, younger MSPs into the government. Many of them, as newcomers to the cause, speak differently about independence and their reasons for joining the SNP than do the generation of Sturgeon, Salmond, John Swinney and Mike Russell.

The second is to return to the debate about devo max or federalism. Again, in conversation with the new generation of Nats you are more likely to discuss these options. A number of them are technocrats who have a view of the way Scotland should be governed. They might see independence as the best way to achieve this, but they are also open to a looser relationship within the UK, one that might involve greater powers around taxation, spending and borrowing. With every UK region outside London running a chunky deficit, Scotland could set its own deficit-reduction target and develop a plan to get there. Not only would that be good for the UK economy, it would also allow the SNP to demonstrate that a separate state could work - and indeed, would work.

In short, the SNP will not whine its way to independence. Its best option now is to do what the Scottish people are asking it to do: make a better job of running the place, and stop talking about independence for a while. First, though, that requires the party to listen.

Chris Deerin is the New Statesman's contributing editor (Scotland). 

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