Playing with Fire, Bail-Outs, and Other Life Lessons
Parenting is a tough job. One has to find a balance between letting kids learn life’s lessons through painful experience (natural consequences), and keeping them safe. The parental path through the child-raising wilderness is not always well-marked.
Fire is hot. Should we let little Janey touch a flame so she learns that it’s dangerous? Guns can kill people. Do we teach little Johnny how to handle them so he doesn’t make a fatal mistake through ignorance?
Life’s perils are endless: marbles don’t belong in noses, mulch is not nutritious, humans don’t have gills… I’m continually amazed by how many children actually make it to adulthood.
All of this has been playing through my mind as I’ve contemplated the massive intervention being proposed for the economy. And I’m not the only one using life analogies. Paul Krugman writes:
Maybe we can let Wall Street implode and Main Street would escape largely unscathed. But that’s not a chance we want to take.
So the grown-up thing is to do something to rescue the financial system. The big question is, are there any grown-ups around — and will they be able to take charge?
But is that really the grown-up thing to do?
Without the bail-out, are we looking at the equivalent of a Mack truck barreling through a crowd of people milling about in the street, leaving death and severed limbs in its wake? Or is this more like a failing grade late in high school, that will keep the US out of a top university?
Certainly something’s going to happen. But what? The general consensus seems to be that no matter what the government does, there’s going to be a painful economic contraction. It may very well be more like blowing one’s GPA so badly that there’s no chance for college at all, and the goals will be reset for the next generation.
Maybe.
But even if that’s the case, is the looming economic problem terminal? Or is it a life-changing event that will affect decision-making for decades to come?
I think it’s probably the latter.
Painful? Yes. Preventable? Possibly… but only for awhile, because rescuing the financial system and increasing regulation won’t keep everybody from playing in the street if they’re really determined.
Bailing everybody out is like saying that if you play with fire, you get burned. Fire is hot. Keep your hands out. But inside, grown-ups know that painful lessons aren’t truly learned until there’s a scar.
I think we should pass on the bail-out.
Cross-posted from Polimom Says…
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The potential American economic meltdown will affect not only a single country, but the world. Non-Americans have no representatives in Congress and have no vote for any past or future president. To say “Gosh, we'll just have to suffer consequences of our own actions” is ridiculously blinkered. If America's economy plunges, other economies will plunge, too. We didn't do a damn thing to cause your economic problems and shouldn't have to suffer the punch-counterpunch of your initial shortsightedness and greed and your current sloth and pique.
America is not a country estate out in the middle of nowhere. It's a townhouse on a crowded street. If your house starts burning down and you decide that it should continue to burn, so that those silly kids playing with matches get taught a lesson, your neighbors will burn, too.
Be grownups. Take responsibility. if you want to gamble with scenarios, go to someone's basement and play Risk and Civilization. Don't play craps with the world economy.
ML — absolutely, the ripples will go out to the world. Is the world then going to help us prop up the global economy?
We'll continue to sell you stuff (if your consumers have the money to buy it). We'll continue to buy your stuff (if your manufacturers have the money to produce and ship it). You will not be isolated. Just take on a damn plan that lets credit flow again, and gives your banks and consumers some breathing space. Just show some good faith and some intent to clean up your own mess.
If you want additional help, you have to help yourselves. If you sit back and suck your thumbs and fail to take responsibility, your prospects of getting any other help from the rest of the world drop.
I think I see what you're saying. Correct me if I'm wrong.
You want the American taxpayers to add nearly a trillion dollars the the US debt, so that your economy can continue to buy and sell at current levels.
Yes? Meanwhile, your own banks and investment firms have been making only smart, socially responsible decisions…
Not necessarily a trillion: the staggered payments, with equity buy-ins and some damn oversight would be a good start. The solution sucks, but doing nothing sucks harder. And you, the taxpayer, stand a chance of making money from the good investments that remain in these banks and investment firms.
And if we don't buy from you — that is, if your business owners can't get credit and can't produce and sell within the country, as well as producing for export — you should remember that your economy does depend on selling to and buying from the rest of the world, just as our economies currently rely on selling to and buying from you. If you can't safeguard your own citizens' housing and investments, if your credit goes dry, if small and large businesses close — YOU will suffer. That's not a “nice little economy you got there, hate to see anything happen to it” driveby threat. That's a statement of fact. Just because we would suffer if your economy tanks doesn't mean that you wouldn't suffer, too. There are no solutions, or lack of solutions, that will hurt the rest of the world worse than you will hurt yourselves.
Please don't try to frame this as the rest of the world wanting the poor American taxpayer to suffer so we don't suffer any pain. We are already in pain. Things could get a lot worse for ALL of us. Whatever crap is going on in our own economies is also our own responsibility to clean up. And the crap that is going on in your economy is your responsibility, too. America has become a very rich and powerful country based, in part, on your internal and external economy. You have to do what you can to safeguard your own economy for your sake, but also because you're one of the world's 800 pound gorillas.
The smoke alarm is screeching in your townhouse right next to mine. How long are you going to sit there with your arms folded?
ML, it was you who injected the idea that doing nothing equates to sucking our thumbs while shafting the rest of the world. I didn't try to frame it any way at all.
IMO, letting the crisis play out is not at all the equivalent of doing nothing. It is yet another path to a solution.
Polimom,
We should force the issue by only helping US banks and financial institutions. Let the other countries take care of their own.