(Photo by nikok)
Everyone keeps talking about the bailout, but it is interesting to me that nobody continues with the analogy to talk about the leaks in the boat. On the water, when you bail out a boat because something has gone wrong, it only makes sense to do so if you can get the water out faster than it is coming in. If that is the case, you get to keep bailing until the boat gets to shore, or it can be repaired. So, if we are going to have to keep bailing in order to forestall catastrophe, the real question people should be asking is how long that 700 billion will last.
On and off over my lifetime I, like many other people with a background in economics, have spent a great deal of time thinking about the great depression, its causes and ways it might have been avoided, even the desirability of avoiding it. On the financial side, some of these are obvious and fairly well understood. Large scale insider trading, which was business as usual at the time, loose credit, and a general adolescent feeling of invulnerability caused a remarkable run up in stock prices that eventually collapsed. On the real side – what politicians are calling
The bailout is, to my mind, an absolutely fascinating, and incredibly expensive, test of the theory that there was not enough money. A long time ago, back when Paul Volker was heading the Fed, there was a great headline in the wall street journal that read something like “What happens if you throw a credit crunch and nobody comes?” The reigning assumption then, as now, was that easing credit will allow people and businesses to borrow money and get things moving. But really, beyond a few anecdotal assertions, there has not been much evidence presented that those who want to borrow money can’t. Just listening to the radio, and the ads from banks that want to lend me money, seems to suggest otherwise to my simple mind. If credit is eased, and still nobody borrows, what then?
While people in
Stepping out of slavery, all this boils down to less going into the hands of those that do the work. While this effect can be lessened, potentially even avoided, by rapid changes in technology, there is no guarantee, or evidence, that this will be sustained. In fact, if you look at the last 20 years in
So perhaps the bailout can be paid for by the Chinese who are now rich because land, in fixed supply, is getting progressively more expensive while labor, with unlimited supply, is relatively cheaper and thus Wall Street can keep itself intact while the residents on
A postscript on this. After reading through the proposed bailout bill, the whole activity is being put under the acronym TARP for Troubled Asset Recovery Program. I am not sure if the new metaphor is intentional. But if it is, apparently those in the know think all of this is simply the result of too much rain, and has nothing to do with a leaking boat. Funny though, I did not see anyone named Noah involved in writing the bill.