A theme has been running through my head for some time. I wasn't really aware of it at all until Rick Santelli had a melt down live on CNBC a couple or three weeks ago. After that it became a vague notion floating around in my brain, but it wasn't ready to be a full thought yet. Then I saw Barack Obama's de facto State of the Union Address that promised untold dollars spent on every possible solution for every ailment America knows. That really got things percolating. Finally, today, the connections and concepts came like a torrent of evidence in a trial or steps in a mathematical proof. I am a student of a few seemingly somewhat disconnected disciplines that have given me an odd insight into our current economic, political, and social situation. I have taught and studied sociology, religion, psychology, government, and economics. Separately, they're quite interesting. Combined, they form who we are as a nation.
The theme that I mention runs through all of the world's major religions. You can find it in the Jewish Torah. As the people of Israel wandered through the desert, they continually sought relief from their suffering and want. But it was Moses and the Law that told them to wait until they reached the promised land. In Christianity, the theme is obvious. The sacrifice of Jesus Christ is complete and all-encompassing, but followers must fore go their earthly desires for the reward that awaits them in heaven. In Buddhism, this concept is clear. There is the assumption that the middle road, or moderation is a key to enlightenment. In Hinduism the concept of Karma carries our theme nicely. To do something that hurts another and brings us joy now, will not benefit us ultimately. Finally, in Islam the concept of doing right and suffering or even becoming a martyr makes our theme clear. And so, this theme, furthered by all the great religions has become a part of America's secular theology. It is part of who we are. To be sure, the United States of America were established under Christian principles, but this theme fits under the umbrella of all religions. We can argue later if all religions can fit neatly under the American umbrella. I believe they can, but that's another argument for another day.
The theme is delayed gratification. It has been a basic tenant of the American experience. Look at the writings of Ben Franklin. Read the speeches of Franklin Delano Roosevelt. Consider the philosophy of Thomas Locke. They all speak to this common theme of delayed gratification. In fact, in psychology, there is an old study done and re-done to prove the importance of delayed gratification. One such study examines the link between the linguistic capacity of Inuit children and their ability to delay gratification. No surprise, the ability to delay gratification correlates directly to the child's success in learning. The original study suggested correlations between delayed gratification and overall personal success.
And so, here we are, in 2008. Having just witnessed consecutive years of negative savings rates. Having lived through a terrorist attack after which we were encouraged to spend money. To be sure, this exhortation on the part of our President was wise. Economic activity helped to bolster our confidence as well as countless businesses during this trying time. But somewhere between World War II and 2002, the concept of delayed gratification died and the American Work Ethic right along with it, or at least they became critically ill. As I grew up in the 70s and 80s my parents and I found the collection of canned goods in my grandparents' basement a curiosity. It was comical to watch them hoard food for a rainy day that never came. Sure, we had a pretty bad stretch when Jimmy Carter was President. We coined two wonderful terms that may be on their way back into the American lexicon: Stagflation and the Misery Index. But even then, the notion of saving food that had been grown in a garden was somehow laughable. It was curious to watch them shun the window unit air conditioner on hot summer days. Why not just close the windows and flip it on? "You don't need it." my grandfather would say. What a curious thought.
That tough time during the 70s gave rise to another concept. Consumer credit. MasterCharge and Diner's Club began making it possible for customers to buy now and pay later. And so it began. And here we are. Here we are 35 years later after having several years of negative savings as a nation. Here we are with untold amounts of consumer debt. Here we are with houses that are finally returning to their rightful values. Remember, we used those houses to finance our cars, pools, basements, clothes and other things we thought we needed. And now the solution, if you ask our President, is to keep it rolling. Swipe the card. Spend money now. Pay later. Saddle your kids with a mountain of debt. After all, we can't let the banks fail! WHY NOT!? Assume one bank fails. Assume they're forced to give up on future payments on the loans they made. Some other institution will be happy to buy those contracts for pennies on the dollar. Somewhere down the line we'll find a baseline. And the winners will be solvent banks and people who paid their mortgage each month. The winners will be those who decided that, despite the fact that their house was worth less than the value of their loan, they'd continue to honor their commitments and do what was right. And the losers will learn clear and painful lessons. Don't make loans you can't count on. Don't borrow at terms you can't afford. To be sure, these lessons will be hard, but the alternative being proffered is to ignore our problem and move forward while supporting failed business models and rewarding those who took a risk and lo
Let's get back to our roots as a nation. Let's return to who we are and do what we're supposed to do. Let's allow poorly run businesses to fail. Let's not reward cheaters with assistance they don't deserve. If a neighbor, or family member loses their home, reach out to them on a personal level. Be compassionate. Take them in. But let's not pay their defunct mortgage for them! I wouldn't do that for my closest friends. So why should I do it for total strangers knowing that the Federal Government will be the one administering the cash?
If we flood the markets with all this cash it will almost certainly lead to a level of inflation that will NOT benefit the economy in the long run. But that's another economics lesson for another day.
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