Getting Americans Back Into the Ecomony
My grandmother grew up in Mississippi during the Great Depression. Life for her must have been unimaginably difficult compared to the ease we enjoy today, even with the economy like it is. She knew how to can food, grow a garden, fix things, and generally live on a lot less. She expected less out of life and was frugal, saving her money for a rainy day. On the flip side she was crazy. The privation during her childhood forever altered the way she viewed the world. To her dying day she sent us food for Christmas and birthdays. If you didn't clean your plate at dinner time you could expect to sit there for a long, long time. While she picked up some good habits during the Great Depression she never engaged with a healthy economy so was never able to enjoy life.
Jump forward seventy years.
"We have to get American's engaged back into this economy." A quote from our president-elect and mirrored a million times over the weekend in every paper across the nation.
Right now people are in survival mode. Like my grandmother, they are saving their money for a rainy day. And right now, it's raining. To understand why we're not buying a lot is actually pretty easy. We like to eat, we like to have a place to live, and we like to wear clothes. The necessities trump just about everything else. In essence, we fear a more dramatic disruption in the flow of money, and if it happens, we want to have a little set aside, and we want to have lower obligations. To make us feel better about it, and get us re-engaged, the government has taken $750 billion of our tax player dollars and handed it over without strings or accountability, to banks - the very institutions that got us in this situation in the first place. (Just this weekend, when asked how they were spending their free billions, J.P.Morgan/Chase said they will provide no public statements on how they are spending our money.)
So where are we:
1) The economy is in bad shape
2) People fear job loss so are saving their money and only buying what they need
3) To make us feel better the government has given $750 billion tax dollars to banks.
4) We are supposed to start borrowing money and spending it so the economy will revive.
Am I the only one who thinks this is the craziest thing I've ever seen? I fear my job being lost so I'm saving my pennies and only spending on the necessities. But the government wants me to stop saving and start buying crap that I don't need. And to make me feel better about this they've given $750 billion to the banks!
Suppose I borrow $20,000 from a local bank to purchase a car. I really don't need a car. The one I have works well enough. It isn't new and I just got done replacing the wheel bearings in my drive way in forty degree weather - not as much fun in your forties as when you were in your twenties. But the car's fixed now. However, that commercial with the new car just has me feeling like I'm less of a man without that horsepower. So I take the plunge. Two months later my job dries up and I'm sitting without a paycheck and precious little reserves. How many months will the bank allow me to default on that new car loan before they come get the car? Am I stupid enough to believe someone will step in to cover my bad loan? There will be no bailout for the consumer who's being begged to jumpstart the economy, while untold amounts from the bailout are going into six and seven figure Christmas bonuses for failed bank executives.
This plan is so crazy it is hard to believe that our leaders can be stupid enough to believe it will work. But the fact of the matter is, they know it won't work. And they don't care that it won't work. The truth is, they are horrified. And this is what they are horrified of: Our political system has stupidly sided with an import-driven, consumer-based economy because it is the easiest and fastest way to get rich. A consumer-based economy is driven by people buying things. But by buying only what you need economic growth is extremely limited. Only by getting people to buy crap they don't need, can a consumer-based economy grow. And right now, people aren't buying crap they don't need. (Yes, I'm repeating this phrase on purpose.) What the politicians, and banks, and business owners, and the rest of the wealthy-thieves* fear is that we will realize we don't need all that crap they've been shoveling down our throats. In fact, in most cases we're actually happier without it. Yes, a new iPod is nice, but listening to that iPod when you have $20,000 of consumer debt hanging over your head sort of mitigates the listening experience.
That is what the politicians are afraid of, another generation of people like my Grandmother. They're afraid we'll decide a simpler life is better. Or that fixing a car in the driveway has it's merits. Or that five hundred square feet per person is enough. That is what they are whispering in their closed-door sessions. The longer people don't buy the crap they don't need, the more they're going to realize they don't need it. And then...
*Wealthy Thieves - those who gain wealth through exploitation as opposed to those who gain wealth through innovation, capitalization, and value added.
NEXT: Why The Gravy Train Must Go On
-Futbol Guru, http://mises.org/Community/blogs/not-a-lemming