There are a lot of questions out there, amongst the public, the economists, and the government officials, ranging from "Who did this to us?" to "Why is this happening?" to "What's next?" to "How do we fix this?"
Given any fifty people, you'd get fifty different answers to each of these questions. Basically, what that boils down to is that nobody knows. I've already said that there's no point in trying to place blame anymore, so I won't go into that, except to snicker about the irony of former President Jimmy Carter, famous for the bad economy, stagflation, and gas shortages, blaming President George W. Bush for fouling up the economy. I think, though, that there are a few opinions on why this is happening that are closer to correct than most: those of the National Review's Victor Davis Hanson, and Townhall's David Strom.
As for "What's next?" I think that's obvious: we're in for a really rough ride. I think that we're really looking at another Great Depression; possibly a longer one, depending on how much the government chooses to interfere.
I can, actually, think of some government interference that could really help, but I sincerely doubt that it will happen. Let me explain.
Everyone knows what inflation is, and what its effects are. Not quite so many know that deflation is worse, or what its effects were. Many are unaware that it was deflation, not inflation that caused the Great Depression to be as bad as it was. The other influential cause for how bad the Great Depression was, and why it lasted so long, was government interference in the market in wages and prices.
Inflation causes prices to go up, and go up faster than wages can keep up. That's bad for the average person making a paycheck and making payments. However, inflation will not cause them to lose their jobs. Deflation, on the other hand, happens when people have money, get scared, and won't spend it. Goods set on shelves at prices that people had been willing to pay, then the prices are cut, and cut again. However, they're still not selling. The longer they don't sell, the more profits the company that makes the product loses. Their overhead doesn't shrink, though--they still have to pay the workers.
Here's where one bit of government interference could help: in January, minimum wage is set to increase again. With the prices of goods and services dropping, this is not a good thing for either businesses or workers. Some businesses will have no choice but to fold, because they can't afford to keep paying their workers. Other businesses will have to fire employees. If the government would at least stop the minimum wage hike, if not slash minimum wage, it could help the economy by saving jobs. I do not think, however, that the government would have either the foresight or the courage to interfere in this manner.
So, "What's next?" is a probable world-wide economic slowdown, possibly rivaling or surpassing the Great Depression. It won't be limited to the United States, this time.
On to "How do we fix this?" Well, there are a lot of people that say capitalism is totally at fault. That there wasn't enough regulation on industry. That there wasn't enough government interference in the market. Those people insist that the only fix is for the government to step in and take over the markets and economies of the world.
I disagree. I believe that the government's interference is what caused the worst of this disaster. I believe that Strom had a definite point: the Federal Reserve, in its decades-long success in regulating the market, is partially to blame in the greed-fest in the investments banking and insurance world, because it removed far too much risk from the game. I believe that the only fix is for the government to step all the way back, let the companies that had less sound business practices fail, and let the markets--both American and world--recover on their own. Yes, it will be more painful in the short run, but the burned hand teaches best in the long run.
Tighten your belt everyone, protect what money you have because everything is crashing down around us. Look at the European Market and how they want to close down the finical market so they can write new laws. Hummm, whom are they kidding! Not us.
ReplyDeleteI look for the American government to follow suit, quickly. After all, FDR did that briefly while he worked out the deal with the big businesses, basically not allowing them to cut wages and keep people employed.
ReplyDeleteThe best bet right now is for each family, like Hanson suggests, to go back to the financial values their grandparents espoused. Dave Ramsey explains how to do that quite well, especially for those who've never been taught to handle money without debt.
My other half and I have no debt. No credit cards. No student debts. No car payment. All we have is the house. We have a reserve. We're set, for now, to be able to ride this for a while. I fear for the average American with the crushing debt loads I've heard cited.