Friday, December 12, 2008

Natural cycles???

Spring turns to Summer,
Summer turns to Fall,
Fall turns to Winter.
Cycles are a natural part of life, for everything there is a season. For most cycles we accept this as fact and act accordingly (think shorts in the summer, coats in winter)except when they apply to economic cycles. Since the great depression we the people have determined that natural economic cycles cannot be tolerated, that the government of our country must be charged with stopping a natural phenomenon. Actually nobody seems to mind when we are in the "economic expansion" phase, it's the downturn they want eliminated. There is of course a reason for cycles: they are essential to life. Summer is great, but if it were 85 and sunny all year long we'd all starve to death and have no water to drink. In reality the problem isn't economic, it's human nature. We like to feel good, not bad. Instead of preparing for the inevitable change in cycle, we would rather charge the government with protecting us from our own folly. (after we have profited from it of course) The boom and bust cycles are essential for capitalism to function properly. Remove the consequences of unwise behavior and humans will act foolishly. The beauty of a naturally occurring economic cycle is that the bust that follows the boom clears out the rotten behavior and makes way for the prepared (survival of the fittest at it's finest). Those that made prudent decisions will be in a position to benefit from the bust, those that were foolish will be decimated.
Human nature is an interesting thing, if you want to know why people do what they do simply look at how they are rewarded. In America we get almost unlimited tax breaks for borrowing money against our house, but we get only limited deductions for savings. It should be no wonder we have a negative savings rate as a nation! We are simply doing what the government is rewarding us to do. By taking away the cleansing effects of the economic downturn we are removing the very mechanism that protects us in the long term. Companies, people, and governments need to be accountable for their actions, meaning that bankruptcies, defaults, and foreclosures are necessary. People need to lose jobs and businesses need to close because ultimately it will prepare us for the next cycle. Think about the typical elderly person who lived through the depression, what characteristics do they embody? Are they thrifty? Do they save their money? Of course they do! They live like that because they remember how much their lives sucked when they didn't have anything so they are going to be damned sure not to let it ever happen again.
We are in the middle of our economic winter, don't let the politicians fool you into thinking they can pass laws to make it summer all the time. Cinch up your belt, learn from your mistakes, and be prepared for the next cycle.

1 comment:

  1. Well written. You make an excellent analogy.

    What is the reason for our lack of willingness to live through and learn from bad experiences? Is it simply a matter of the government rewarding the wrong things? Is it misplaced faith (faith in government, faith in leaders, faith in Wall St., whatever)? What besides hitting the real bottom can possibly trigger the necessary changes to make people aware? Where is the real bottom?

    The system is completely screwed. Could a politician get elected by speaking the truth about Natural Cycles? Not yet.