Last updated: March 3, 2006 10:27 am

Crunchiness

Crunchiness brings wealth. Wealth leads to sogginess. Sogginess brings poverty. Poverty creates crunchiness. From this immutable cycle we know that to hang on to wealth, you must keep things crunchy.

Crunchy systems are those in which small changes have big effects leaving those affected by them in no doubt whether they are up or down, rich or broke, winning or losing, dead or alive. The going was crunchy for Captain Scott as he plodded southwards across the sastrugi. He was either on top of the snow-crust and smiling, or floundering thigh-deep. The farther south he marched the crunchier his predicament became.

Sogginess is comfortable uncertainty. The modern Scott is unsure how deeply he is in it. He can radio for an airlift, or drop in on an American early-warning station for a hot toddy. The richer a society becomes, the soggier its systems get. Light-switches no longer turn on or off: they dim.

Intelligent questions replace the church’s absolute faith. Seat belts are worn. Words (like these) are not written down, but processed endlessly. Exam papers are no longer passed or failed but graded, with no one quite sure what grade is needed for what.

Some of these softnesses are the welcome accompaniments of wealth. But lurking beyond sogginess lies moral hazard and systemic drama. Take the world-wide move from fixed-rate money-lending to floating-rate loans. Fixed-rate lending is crunchy: borrower and lender commit themselves to a future view of inflation and interest rates. If interest rates rise, borrowers are heftily deterred, for no one wants to be saddled with a loan at a rotten rate. In a soggy, floating-rate system, no such commitment is needed: the borrower lives in hope that his interest charge will fall. He knows that it will be no higher than his neighbour’s and suspects that there is safety in numbers. The result is a need for puzzlingly high rates of interest to curb consumer borrowing.

The dangers of sogginess abound in a modern economy. “Portfolio insurance”, provided in a financial futures market that transfers crunchiness from hedgers to speculators, gave some American investors a soggy feeling of reassurance before 1987’s stockmarket crash. So share prices had to move horribly to undo their comfortable excesses. Soggy federal deposit insurance, coupled with the move towards a soggier interest-rate regime, has taken many of America’s thrifts and banks into the shadow of a systemic collapse. Dramatic bail-outs are now needed.

Liability insurance provided American industry with a soggy riposte to the highly unsatisfactory evolution of American tort law. Don’t fight the absurd lawsuit: let our insurers settle it out of court. Liability insurance cover has now become so expensive that whole areas of business are threatened. And the next soft-headed notion will be “no-fault insurance” no matter who is to blame, your insurers will pay up.

Crunchiness is not just a facet of right-wing politics. Much of the sogginess so far mentioned was served up by the free market: the comforts of sogginess are much in demand.

Stalin was crunchy in his own way. Gorbachev needs somehow to become a lot crunchier in his. Mrs Thatcher is certainly crunchy. Her policies towards the Falkland Islands, the British coalmining union and the dwindling worth of the pound were crunchiness writ large. Inflation is acutely soggy, leaching away the wealth of savers and the obligations of debtors, transferring national income from the uncomplaining to the militant. But after nine crunchy years fighting inflation Mrs Thatcher seems to be flirting with sogginess today. Her desire to keep sterling floating rather than link it firmly to the D-mark is uncrunchy too - the Bundesbank being the crunchiest institution in a country that is rapidly becoming Europe’s soggiest. President Reagan? Crunchy but with a sentimentally soft centre. Munchy perhaps.

A crunchy policy is not necessarily right, only more certain than a soggy one to deliver the results that it deserves. Run your country, or your company, or your life as you think fit. But whatever you decide, keep things crunchy.

Colchester’s crunchiness: This leader was written in August 1988 by Nico Colchester, our former deputy editor, who died last week at the age of 49. Its message is timeless .

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