True North

The Washington Post is already deconstructing the financial crisis, and looking for the upside. That being, we will learn our lesson and be better for it in the long run. It’s a pretty good forensic analysis but Fareed Zakaria got a couple things wrong…really wrong.

Since the 1980s, Americans have consumed more than they produced and have made up the difference by borrowing. Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount for any purpose. Household debt ballooned from $680 billion in 1974 to $14 trillion today. The average household has 13 credit cards, and 40 percent of these carry a balance, up from 6 percent in 1970.

This is all true, but I don’t know one person that has thirteen credit cards.

But the average American’s behavior was virtuous compared with government behavior. Every city, county and state has wanted to preserve its proliferating operations yet not raise taxes. How to square this circle? By borrowing, using ever more elaborate financial instruments.

True also. When do we get to the part however, where the two combined forces. Where government decided that home ownership, and getting a loan to make it so, was no longer the American dream? That in the interest of “fairness” it was a right; no matter what your income or credit history was.

If there is a lesson to be taken from this crisis, it’s an old rule:There is no free lunch. Now, debt is not a bad thing. Used responsibly, it is at the heart of modern capitalism. But hiding mountains of debt in complex instruments is an invitation to irresponsible behavior.

Okay, I’m still with you.

In the short term, governments must take on more debts and obligations to resolve the crisis. But that doesn’t mean we should stimulate the economy with more tax cuts, as some economists advocate. That would only keep the party going artificially. A far better stimulus would be to expedite major infrastructure and energy projects, which are investments, not consumption,and have a different effect on fiscal fortunes.

…as some economists advocate? Silly economists. Don’t listen to them. Keep the party going artificially? Like the longest and most robust period of economic prosperity ever in the history of America? That was a party? No. It was real and it was brought on by a disdain for ever-larger government and economic growth spurred by tax relief.

…and let’s not forget…one benefit of Ronald Regan’s leadership: revenues to the federal government increased dramatically. Revenues that could be used to pay for those goverment functions that are necessary and practical; revenues that could be used to pay down our debt. Back then we had a true fiscal leadership in the White House. It’s been a while.

A far better stimulus would be to expedite major infrastructure and energy projects, which are investments, not consumption, and have a different effect on fiscal fortunes.

Them’s some big words. I love it when a liberal calls government spending an “investment” and hides it among the big words - prose not unlike the financial derivative instruments he (rightfully) lambastes a few sentences ago.

The U.S. economy remains extremely dynamic. Even now, the most surprising data continue to be how resilient the economy has been through the recent shocks. That will not last if the panic persists, but the economy’s underlying virtues would help it recover quickly from a recession.

Underlying virtues..extremely dynamic..resilient? Sounds like our economy is fundamentally sound. You best be careful there…that sounds like you agree with John McCain. That could cost you your paycheck where you work.

The Fed, White House and congress are almost out of options. Pelosi’s proposed stimulus is more of the same and will only contribute to the length and depth of whatever course this crisis is bound to take. The only option - the only proven option - is to cut taxes and allow the free enterprise system - led by small business - to grow us out of this predicament.

Cross-posted and comments welcome at Shot In The Dark.