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Unintended Consequences
Unintended Consequences
I get it. The economy last week was on the verge of meltdown. We were on the brink of real chaos and the government reacted to the crisis quickly. And I have little doubt that in the near term this solution, buying all the problem debt from troubled banks, will work insofar as calming the markets and investors are concerned. Also, I want to point out that I am a very practical person and never see the world as black and white but instead shades of grey and to me it is immaterial whether this or any potential solution is ideologically pure.
All of that said, I think that this is going to turn out to be a gigantic mistake. Oh, it may take a while for this to be evident, but nonetheless, I think that down the road we may all look back on this decision as the straw that broke the camel’s back and led to economic disaster. Man, even as I write this I cannot believe it is me! I mean, I am practically a Pollyanna by nature, always seeing the glass as half full. Being hopeful I quickly want to add that I, like all human beings am often wrong and I really want to be wrong about this for all of our sakes.
I try to keep these blogs brief and I could write thousands of words on why I think that this is just plain wrong, but to keep it brief here are my thoughts in overview. First, the government got into the business of trying to control and eliminate the pain of the general population at the time of the Great Depression. Beginning with Franklin Roosevelt the federal government became responsible for not just protecting the country and conducting broad policy initiatives, but also started trying to provide quite literally happiness. Since that time many, many programs by both major parties have been enacted to solve everything from poverty to disease. The thing is that virtually all of them, with the one major exception of Social Security, have been ineffective. And Social Security is a ticking time bomb just waiting to explode as almost everyone with sense recognizes but few politicians are willing to address. President Bush recently tried and was rewarded with horrible approval ratings. Think him right or wrong, most would concede he has guts and that is a very rare quality in politicians. Most of them will just wait and blame someone else.
Now, I am not going to get on my soapbox about individual programs but the constant in all of this stuff is that enormous sums are spent, the national debt is about to rise to over $11 trillion, no plan for repayment is in place and the interest alone is making it increasingly impossible to clean this mess up without major upheaval. Plus, and here is the kicker, all government programs lead to unintended consequences. Welfare that led to an explosion in unwed mothers and a subsequent explosion in crime is one example. Another is that the rules for marking to market securities in a bank’s portfolio that came as a result of the 1980s Savings and Loan mess have made the current problem oh so much worse. I could go on and on.
But here it is. This is the most massive federal intervention in the economy ever, it is being done in panic and without serious thought and deliberation, and the unintended consequences are going to be enormous. You can just bank on it. What the pundits and experts always forget is that though they think that they or our leaders are smarter than the average person and can run something like this, it is just shear hubris. We are going to find out later that it would have been better to take our lumps now and get it over with, but instead we are just pushing it off until later and that is never a good idea.
Man, do I hope that I am wrong.
Posted by Herb Kay on Thursday, September 25, 2008
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