PrintJanuary 16, 2009
The Fear of Doing Nothing
A lot of our economic troubles could be solved if we could just keep our emotions in check. Seriously. It seems that fear, greed and the thirst for power have swept the country like an airborne virus. The fear of doing nothing rules the day -- not logic, not study, not knowledge or analysis. Certainly not patience. Our leaders, whoever they are, are acting like third grade schoolchildren who have been told by their teacher that a snake is loose in the room. And by the way, wouldn't you like to know who that teacher is? Who is in charge?
Our two presidents, in collusion with our Fed Chairman and our two Treasury Secretaries, have now asked Congress to send more good money after bad. I can almost forgive Fed Chairman Bernanke, who seems to be burdened by knowing too much about the Great Depression, but what about the other guys? One fact, and one fact only, seems crystal clear -- they don't know what they are doing and what the outcome of their actions will be.
We have had almost seven decades to examine it, but we still cannot agree on whether the New Deal worked or why the Great Depression happened. Herbert Hoover tried low interest rates and huge stimulus programs to revive the economy. More major public works were started in his four years than in the previous thirty. Loans and grants went to the needy. Sound familiar? Of course, Roosevelt eclipsed Hoover's records with the New Deal. I think the New Deal did not work, and I can back it up with facts, but other people can select other facts to disagree. Some say WWII ended the Great Depression; others say returning soldiers to the workforce did it. I think it was a combination of our great industrial engine geared up for wartime production combined with the enterprise of returning soldiers ready to go to work. So if we cannot be sure about these things after seventy years, how can we expect to know now?
Of one thing we can be sure. There have always been recessions and there always will be recessions in a free market economy. I think they serve a purpose. Consider Bernie Madoff. He might have gone to his grave with his scheme in place if the economy had not turned south. How about Fannie and Freddie, a dangerous duo of mongrels produced by the ugly mating of private and government entities. Recession finally shined a light on them. How about their politically-appointed execs who cooked the books and paid themselves obscene bonuses? Or the bloated, greedy CEO's of investment banks who earned millions while their banks tanked. What about auto company execs who paid themselves huge salaries and perks while ignoring a steadily declining market share and a business model that does not work. How about union leaders who negotiated their members right out of their jobs? What about us consumers? Did we not consume to excess with houses we cannot afford, plasma TV's in every room, gas-guzzling cars, iPods in both ears and cameras/cell phones/computers on each hip? Most of us, I think, have recognized our excesses because of the recession. Most of us have cut back on waste and only borrow when we can afford to repay.
The prevailing argument seems to be that we have to spend our way out of this recession. We must have easy credit. But wasn't housing the first domino to fall in this crisis? Wasn't that caused by too-easy credit exacerbated by government requiring banks to make bad loans? Our leaders propose more hair of the dog that bit us. Harkening back to both Hoover and Roosevelt, they also want more spending on infrastructure that will "create" more jobs. Why will the same poison now cure what it has killed in the past? These jobs are not real jobs, because they are paid for by taxes. You cannot grow the economy by taking away from one group and giving to another. Real jobs produce real products, real services that are not tax supported.
Most of the loyal opposition seems to be afraid of appearing as obstructionists to this colossal spending juggernaut. "We can't be seen as doing nothing." Why not? Which is the greater risk: throwing trillions in an untested attempt to suspend the business cycle or saving the trillions (which we might need) and taking an equal risk that doing nothing might allow the cycle to take us down a steep path through a long recession? I say that throwing money at the problem is the greater risk.
Our leaders, while admitting that nothing they have done so far has worked, say that doing nothing would have been much worse. The follow-up question that is never asked, "How do you know that?" The answer, of course, is that they do not know. How much do we have to spend? They do not know. Where will the money go? They do not know. How will we repay this colossal debt? They do not know.
No leader has had the courage to utter three honest words. I don't know. How about these? I was wrong. Or maybe, That did not work. How about a simple, I am sorry. I resign and return my unearned bonuses. Nobody apologizes anymore. Nobody admits when they are wrong. They just keep doing the same thing over and over, expecting to get different results. Our children and our grandchildren will pay and I predict that they will look back at this time and cringe at some of the most egregious, irresponsible acts in our history. I can only hope they are employed in really lucrative jobs, because they have got a lot of taxes to pay for our mistakes.
Jim H. Ainsworth, former CPA, CFP, CLU, Registered Investment Advisor, Licensed Securities Principal, was twice named one of the most influential accountants in America by Accounting Today magazine. He welcomes comments at jimainsworth.com.
