When bad things happen in life, most of us understand that we need to change things to avoid the same bad thing from happening again. For example, if we run up our credit card balances to the point we can’t afford food and rent, then we understand we have to tighten our belts, have discipline, and never return to the same old irresponsible behavior.
When we have a relative who has a drinking problem, we understand that we need to get the booze and pour it down the drain, and convince him or her to stop drinking. Otherwise, we know our relative will soon die. The same goes for a heroin addict. Now, when you cut an alcoholic off from booze, or a heroin user from opiates, you fully understand that there will be short term, unpleasant reactions. The drunk will likely turn mean and curse you. The addict will have unpleasant withdrawal symptoms, including vomiting, sweats, itching, and tremors. But in a day or two, those symptoms will subside, and the addict will be ready to change his ways.
For some reason, though, we think this common sense goes out the window when politicians act irresponsibly. For some mysterious reason, we think we should not stop the foolish policies that caused a crisis, but continue doing more of the same.
A perfect example of this is the current economic crisis, brought on by decades of government spending, government meddling in the economy, and–most importantly–decades of loose credit and monetary policies that created the biggest bubble economy yet. The predictable results of loose credit and monetary expansion is malinvestment–a bubble. Eventually, that bubble has to burst, and when it does, there is going to be a whole lot of misery.
The solution to a credit bubble is to let the economy go through the withdrawal symptoms, and then swear never to indulge in the same policies again. As it were, the economy–like the drug addict–needs to vomit, shiver, and sweat. Leave things alone, and the economy will recover, like the drug addict, in a short time.
But politicians think the solution to a credit bubble is–more of the same loose credit policies that caused the problem in the first place! This is, in a nutshell, what the bailouts have amounted to. Actually, they are not even, strictly speaking, loose credit–the banksters and politically-connected businesses have just been handed taxpayer money, no strings attached. In the eyes of politicians, the solution to economic crisis brought on by years of phony credit “stimulus” is–more stimulus!
This is like giving a couple more drinks to your poor, alcoholic relative who is going through a hangover. Or, it’s like giving the heroin addict another injection, just to stop the withdrawal symptoms. And then, predictably, the alcoholic and the drug addict ask for more.
There is no painless way out of a bubble economy. The best thing to do is to accept short-term pain, let the malinvestments get sold for pennies on the dollar, and let businesses start rebuilding. If you love your poor, alcoholic relative, you cut off the booze, even if he screams at you and has the DT’s. If you really love this country, you need to cut off the cheap credit, even though thousands will scream in protest.
Politicians, by their nature, will never do this. Statesmen will, but politicians won’t.
In our analogy, the economy is a drug addict, the government is his pusher, and you’re the responsible relative. Will you flush the drugs down the toilet, or let the pusher keep upping the dose?