There's Good News Out There

A Note of Optimism

I'm Scared

We are in trouble.

I gotta admit, the stuff I've been reading on economists blogs, such as The Big Picture and Greg Mankiw's Blog, is a bit one-sided. but I don't see much praise of these moves from anyone that understands the economy. And from my evaluation of it, this is a bad move. As Luigi Zingales put it, the government is creating a system "where profits are private, but losses are socialized." That doesn't sound like a good system to me. I love to benefit from my work. And in all honesty, the idea of not paying for the things that go wrong around me or because of me is very attractive. But I don't want others to pay for it. If it's a case of them or me, I will say me. Hence, if I'm willing to pay for my mistakes, I ask that others pay for their own. 

And more important than who pays for what is what happens when we pay for it. If I trip down the stairs and break my collar bone, rest assured, next time I'll walk down those stairs with extreme care. If I ride my bike without a helmet, crash, and get a concussion, next time I'll wear a helmet. And what encourages me? The pain. What if the pain were taken away? Well, I'd run recklessly down stairs and knock my brain around falling off the bike, and probably end up killing myself from all the injuries. The pain is a motivation to change. If we take the pain of this crash from those who are in a position to make sure it doesn't happen again, then they will not learn and we are in danger to face this again.

Of course, there is a degree to which I'll take on others losses and pains. I believe in service, in helping and loving my fellow man. I will work in soup kitchens, I will pay fast offerings, I will give time and money to help others. But that is on a personal, individual basis. I reject the government's right to force me to help others. 

And this differs from my personal willingness to serve in another way. I reject the government's right to take my money and help not the outcast and downtrodden, but the wealthy. This money is not going to help the poor. It is going to help the rich. 

We are in trouble. The capitalist system which has produced an incredibly wealthy and stable economy is being threatened by those who should protect it. But you can't trust politicians to think of the long-term. They are forced by short-term economic incentives (the need to get their constituent's vote in a month and a half) to think in the short-term. 

The market's up, but at what price?

I Like Your Thinking...

All right, now you can hear from someone who has a better idea what he's talking about:

Perhaps, It's Time to play Offense

So, here's the balanced idea. The government needs to step in to a degree. But it should do so in a way that limits the amount of our money it uses and it should let the market take care of bad business-men. Should we bail-out people who are bad at business? Does that help the economy in the long run?

More Beauracracy?

Obama wants more regulation

So, Obama wants more regulation, while McCain wants a government study. My honest opinion, as a highly educated economist (a total of 3 basic econ classes), is that the government should have as little involvement as possible. Government involvement is part of the reason we are in this mess. Granted, it's a complex issue I hardly understand. Let me say what I know, or have been told.

First, this housing crisis was one foreseen years ago. I remember walking with my dad through the frames of new houses on the edge of Simi, talking about how these house prices are being driven up not by actual demand, but by speculation. And that's exactly what it was. It was an unsustainable surge, because people simply couldn't afford to live in the houses they were getting. The supply of nice, big houses exceeded the demand.

Second, the government, in an effort to help out the mortgage market, set up Fannie Mae and Freddie Mac. Their goal was to make it easier for people to get mortgages. The way it worked was, banks would sell people mortgages. Then Fannie Mae and Freddie Mac would buy bundles of mortgages from the banks and sell them as securities to investors. So, the banks had no accountability. They simply had to get the commission. They sold mortgages to people they probably never would have sold them to if the bank had to care for the mortgage. The government helped out the mortgage market, all right.

Third, there is a natural business cycle. Over all of recorded economic history, there have been ups and downs. Sometimes everyone gets more prosperous. Sometimes everyone gets a little poorer. But time has proven, at least in the U.S., that despite every downturn, Americans have consistently gotten richer. This cycle will end as well, and the prosperous days will return.

So, eventually, as has happened several times in the past, the bubble burst. People realized that they were paying far more than the houses were worth. Something sparked someone to start selling, then others started selling. Mortgages became worthless because so many had been sold to people who couldn't pay them. The market began to unravel.

Now, is this the government's fault? No. Is it the banks? No. How about the buyers? No. Whose is it? Well, I feel everyone shares the blame. There was a lack of responsibility, long-term thought, and understanding of markets on all sides. 

The government made a move they didn't necessarily need to make. They stepped in on a market to make it more "fair." My opinion there? This should only be done very, very carefully, if ever. Despite my advanced economic understanding, this is a subject I need to study more about. I do feel, however, that if the market has driven prices up, there is a reason, and it has nothing to do with anyone taking advantage of anyone.

Banks made a big mistake. There were no short-term incentives to control who got mortgages, but they are now experiencing the long-term ones. Rest assured, no matter what the government does, banks and businesses will learn from the mistakes of their failed competitors and set their own regulations. It makes good business sense.

And of course, there is us - the consumers. It was consumers who began the speculating and bought things that they couldn't afford. Ok, maybe not you and I, but many people not too different from us. What this comes down to is simple advice that we have been told by parents, teachers, advisors, and even our modern-day prophet - don't buy what you can't afford. Stay out of debt. Homes are wise investments, but you have to be able to at least pay the interest rate. Spending money wisely would probably solve a lot of problems in today's economy.

The financial market is reeling. It is in the low part of the business cycle. Hopefully it doesn't get worse. But it will get better. And I don't think the government is going to get it better. I don't think my tax dollars are going to save anyone's butt. My hard work will save mine. And it will be the hard work of the average American that gets us out of this mess. Each man, working for his wage, for his personal profit. That is the solution. If we work hard enough to provide for ourselves, not only will we personally make money, but we will produce something. That thing which we produce is what we pass on to the next generation. It is what they will build off of to be far more prosperous than us. But if we sit on our butts and try to make money off others, then it will fall apart. Someone somewhere has to produce. Someone has to seek profit through their honest hard work. If no one does, then it falls apart.

So, what is my solution? Well, I have a lot to learn in my field. There is a lot I don't understand. But I don't think the government should do too much. They should do something. While the business cycle always has and always will exist, it hasn't been nearly as bad since the Great Depression, when the government began stepping in. But limited involvement is important. The simple reason is, I feel, because of the lack of information the government has. They don't understand the complex economy. No one does. So if they try to control it, it will be like building levees around New Orleans - doomed to failure. They can affect it, but they have to accept the fact that collapses such as these are inevitable - just like hurricanes. Of course, one big difference is that while people can't cause hurricanes, government regulations can actually cause economic problems. So, both McCain and Obama must be very wary of where they step. I'm sure they both seek a better economy. The fact is, it's very difficult to tell how to bring that about and impossible to force it. I think McCain's more cautious and careful approach is better because it won't accomplish much straight away. The slower it takes the government to step in, the better.

In the meantime, don't let your investments rely entirely on the stock market.

The Winds of Change

I think the nature of my blog might begin to change soon. I decided I want people to read my blog. People tend to be more interested in reading about other people's lives than they are in reading about politics and economics. Not that i won't write about those things - that's part of who I am. But there will be updates on my life here. Soon...