Maybe the Economy Should Wait

Never has the United States had to make such a momentous decision so quickly, except on more memorable dates such as December 7, 1941 or September 11, 2001. Is this really that urgent?

Our betters tell us that the “financial meltdown” leaves us only two choices: Either put this nation in hock in unspeakable amounts to who-knows-whom for how long. Or bring on another Depression. And we must pick our poison right now — no looking for reasonable alternatives. All the key players agree that we’ve got no time to spare; all us bit players can’t fully understand why.  

If it were up to me, and, thankfully, it’s not, I’d rather ride out the storm instead of selling myself and my country to the lowest bidder. I’d rather count on the reliability of economic cycles (minimally managed) to bring us out the other side of the storm than to turn an entire free market economy — or at least a good chunk of it — over to the management of one person, the American government in general, or to the government of whatever country or countries decide to bail us out. (Somehow, France is nowhere to be found.  They’re always there when they need us.)

How appropriate is the term “bail out” as applied to the present crisis. A bailout doesn’t look beyond the immediate concern of keeping the boat we’re all riding in afloat. Bailing out the boat might save it and its occupants — providing we can bail faster than the water that’s rushing in — for the time being, but it doesn’t necessarily repair the leak, make the boat ship-shape to resume its intended course or guarantee its passage to its next port.

We have to realize that we are on the brink of a fundamental change in our economy and system of governance, and we’re going into it with our eyes closed. Not just us, but the entire world. What our government does in this global economy will be felt way beyond our borders, with the significance for global free markets uncertain at best. If it’s fair to consider the consequences of “doing nothing,” it should also be fair, if not necessary, to consider the longer-term consequences of “doing something,” especially when that something amounts to economic jury-rigging. Truth is, we’re being jammed up by panicky Wall Street traders and other assorted practitioners of financial voodoo, as well as politicians who are running like crazy from any implication that they’re letting all those poor sub-prime borrowers descend into financial hell.

Perhaps the wisest thing I’ve heard anyone say about this mess came from my son-in-law, George: “A character from a movie once said liberty dies with thunderous applause. The government has acted (and will continue to act) as a public insurer of risk. It will grow even worse as the stakes in this economic game of chicken grow further. The government will most likely have no choice but to further destroy the U.S. dollar. Absurdly, at least 50 percent of America will welcome it. An unenlightened electorate was Thomas Jefferson’s fear. It was probably the primary reason the founding fathers established us as a democratic republic rather than, contrary to current popular belief, a pure democracy.”

The stampede is on, and there’s no stopping it. Once the crisis was dropped into the hands of the politicians, the political costs of appearing to be “doing nothing,” are way too high. Thoughtful, wise reflection is no longer virtuous. Just as the motivations that got us into this mess, the personal cost to the people in power is way too much for a calm search for a solution. Oh, but we’re told, we can’t let us slide into the kind of economic disaster we’re surely headed for. Treasury Sec. Hank Paulson told Congress that he has studied the Depression, and that’s where inaction will lead us.

I’m not convinced, but Paulson and others sure have me scared, as I watch my retirement savings dwindle. And in such a state, it’s hard to be the one to say, “Hold up.”

The concern for the American homeowner in the mess is nearly universal, even though too large a number of American homeowners was the main beneficiary of inexpensive, too-easily-obtained mortgages. If you think it’s too mean to suggest that the American borrower should pay the price along with the goniffs who took advantage of them, then allow us to consider the longer-term impact of the “bail out” not just on sub-prime borrowers, but on American consumers and taxpayers in general. Common sense tells me some things, such as becoming the biggest debtor in the world’s history will further weaken an already weak dollar. With the U.S. facing the necessity of borrowing $1 trillion or more, how many lenders do you think will be rushing forward with their money? How many banks would be glad to lend you $60,000 to buy a luxury car when you’re already up to your ears in debt?

A weak dollar is nasty business, for everyone. It’s been shrinking for years and has  devalued the labor of every American, cutting into his wages and assaulting his savings. We keep hearing complaints about how “real” income hasn’t advanced enough. Okay, but a weaker dollar reduces consumers’ real spending power, which amounts to a reduction in real income.

A weaker dollar, by increasing the cost of imports, will add to inflation. And a weaker dollar helps American exports and could help reduce the trade deficit. But a worldwide cheapening of U.S. products and services is not the direction we should be going. And there’s this: the cheaper the dollar, the more it costs us to import energy because it will take more of our dollars to buy a barrel of oil.

The greater cruelty to the American public, consumer, and taxpayer is to ratchet up our debt to astronomical levels. Crushing interest payments already make many of the social goals valued by Democrats difficult, if not impossible. The burdens of paying off the debt, if that can ever happen, will gravely reduce the choices, quality of life and financial stability of coming generations. But everyone already knows this, even Republicans that have dumped their once-sensible economic concepts in favor of the immediate gratification.

But this is the nature of panics. We’ve got to do something, anything, and we’ve got to do it now. Even if it means trampling on our own best interests while stampeding into a blind canyon.