And it's an even bigger problem when there's a mass of come-ons saturating the media and popular culture enticing people to jump into the quicksand.
Because after all, debt is ssssexy, don't you know?
Posted on 05/17/2009 10:06:10 AM PDT by ancientart
Bad analogies (as Dilbert creator Scott Adams constantly points out) are a major reason for bad decisions. The last months of the Bush administration and the first months of the Obama administration show clearly the many problems that result from the widespread adoption of a particularly misleading analogy: the comparison of the economy to a hydraulic system powered by some kind of a pump.
By mid-2008, it was apparent that the American economy (and, as a result, the world economy) was in some trouble, perhaps catastrophic trouble. Cries came from every corner for the government to do something before it was too late.
But what exactly was the government supposed to do? Time to “prime the pump,” the pundits told us: Put extra money into the economy, and goods and services would start flowing rapidly again. But how was the pump to be primed? Lots of economists called for tax cuts. Others called for increased government spending. Some politicians advocated the first solution, others the second. And many politicians, hedging their bets, pushed for both at the same time.
One can see why politicians like such solutions. Major constituencies want more government spending, while other major constituencies want tax cuts. Both groups use the “pump priming” argument for policies that benefit them and, as a result, unless one really thinks the economic issue through, one ends up thinking that there really is an economic “pump” that needs to be primed.
It's not at all clear that there's anything in the real economy that corresponds to such a pump. But, even supposing there were and that the hydraulic analogy is appropriate for describing our economy, is it really the pump that is the source of our economic problems? Or does the problem lie elsewhere?
Suppose your water stops flowing. It's certainly possible there's a malfunctioning pump somewhere. But that's not the only (or even the most obvious) potential source of the problem. It's a lot more likely that you've got a leaky pipe, or that there's something blocking the pipes. It might even be that someone is tapping into your supply line to divert water from your house to theirs - meanwhile sticking you with the bill.
And that's what's really happening in America. We're not facing a pump problem; we're facing a pipe problem - a pipe problem created by an ever-expanding federal government and by a nightmarishly complex tax code that guarantees an inefficient economy.
The current tax code blocks up some of the pipes and creates leaks in others. Worst of all, it allows the diversion of resources to some very sophisticated thieves. Very unfortunately for us, government bureaucrats, the political leaders of both parties, the highly paid chief executive officers of our businesses and lots of other movers and shakers are the beneficiaries of the complicated tax structure. They have no incentive at all to fix it - quite the reverse.
Nothing in either the Bush or Obama stimulus packages does anything to end the misdirection of economic resources. Nothing in either package does anything at all to fix the economic leaks and blockages. The so-called pump priming just creates more leaks and more blockages. Eventually, the broken system is likely to leave us swimming in an economic sewer.
Well, that's my analogy. And I'm sticking to it.
Best analogy I’ve heard of so far...
Yet not a lot can be done about it now...Pandora’s box has been opened and spilled out for all to be infected, whether we wanted it or not...
Be kinda neat to fire most of the people responsible for this mess, and they are the same ones trying to fix it, yet they are making it worse...
Oh well...
The guiding rules for a vibrant economy are quite simple, the more money people have in their wallets, the more they will invest, save, and SPEND.
Why is this so hard to understand?
Note that your list of “save, invest, spend” didn’t include BORROW.
Yet that’s exactly what our entire economy has been, and continues to be, built upon.
People willingly fork over $496,983.60 for a $250,000 house, delighted that they got such a great 5.25% zero-point interest rate, because everyone thinks that a 30-year mortgage is just hunky-dory to carry for thirty years - or worse yet, only seven years at a time having paid barely over 10% of the principal balance but nearly $90,000 in interest by that point - and then put their flat-screen TV on the credit card.
There was a story in the paper this morning where a 60-year old couple has burned through their retirement savings and been forced to declare bankruptcy, and are underwater on their mortgage and having to move in with their kids in Texas.
If they hadn’t bought the debt-based lifestyle that is pushed by the banks hook line and sinker, they might still be in a real pickle but they might not be getting foreclosed upon and forced onto the street.
We’ve been trained to confuse a borrowed lifestyle with a real lifestyle, all to the benefit of the credit card companies.
Your point is excellent.
The difference between a "Cash Flow" mentality and an Equity mentality.
Borrowing can be a good thing. It can also be quick sand. The problem is, many people don't realize they are in quick sand until it is too late to get out.
The Federal Government has obviously closed their eyes recently, refusing to see they are pushing us all into quick sand.
And it's an even bigger problem when there's a mass of come-ons saturating the media and popular culture enticing people to jump into the quicksand.
Because after all, debt is ssssexy, don't you know?
WASHINGTON - Americans’ personal savings rate dipped into negative territory in 2005, something that hasn’t happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.
The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.
The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.
What's old is new again, eh? It's chilling reading, this article, knowing what we all know now.
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