Wednesday, July 9, 2008

USA Today, lost vacations, the Fed, and American whining

My Dad does not have a lot of patience with the nation of wimps we have become.

A few weeks ago I was talking to him about the fact that fuel prices (among other things at our house) would be curtailing our normal big, two-week vacation this year, and that we were having to make other sacrifices to get back to living within our means.

He was unimpressed.

"We didn't get to go on big vacations when you were growing up, did we? And without all the credit cards, nobody really had the option of running up all that debt. So how are you any better or any worse off? You people keep expecting everything to always get better and better, and that isn't always going to happen. Get used to it."

He's right about the myth that the American dream is that every generation should have it better than its predecessors, or else we're somehow failing. Throughout most of American history--and for most Americans--moving up in the world, whether in relative terms (status) or real terms (wealth), has always been a chancy thing. The 19th Century is filled with Panics that wiped out banks and savings, forcing many to go west, not because of a dream, but because they'd lost their land. Cycles of boom and bust have been endemic in American history; only during the 1990s did our politicians have the hubris to suggest they'd somehow repealed the business cycle, and that henceforth there would only be expansion, slow-down, and soft landings.

The point? I almost threw up when I read this in USA Today (which is why I should never read the damn rag, but it was delivered to my hotel room door):

Shelby and millions of other young people have become the largely overlooked victims of a real estate crisis that's led to record foreclosures, sinking home prices and rising numbers of families straining to pay mortgage bills as adjustable-rate loans grow more costly and home equity shrinks. Children and teenagers are enduring a variety of consequences — forced to move and say goodbye to friends, leaving behind schools and teachers, and losing the ability to take family vacations or take part in summer camps because of the financial strain.

Some are giving away family pets or suddenly finding themselves in charge of babysitting siblings because parents can no longer afford child care. In the most drastic cases, some wind up living with relatives or even in temporary shelters for the homeless.

"This housing crisis is taking away the innocence of our kids," says Phillip Lovell, vice president of education policy for First Focus, a Washington, D.C.-based bipartisan advocacy group focused on families and children.

What utter crap.

OK, first let me say (because if I don't I will be a Nazi) that it's not a good thing for kids to be put through upheavals even when their parents gambled with their futures by taking on mortgages that they couldn't afford.

But give me a break. Children are losing their innocence because they can't go to summer camp, or because they have to babysit siblings? And that's somehow in the same sentences with being forced to move into homeless shelters?

This is an article for the middle class, about the middle class, and a revelation that the middle class in America today apparently lacks the character and grit we normally associate with America.

Maybe if these parents had made a few tough choices over the past few years, like cutting out a trendy summer camp or (just for kicks and grins) buying a house based on normal mortgage lending rules with a fixed rate that they could afford we wouldn't be treated to the pathos of young Americans deprived of Disneyworld and turned into hopeless wrecks and wards of the state.

And what's our solution to this massive problem?

Not to expect the people who borrowed and the banks who loaned to deal with the consequences of their actions, oh no. That would be heartless and cruel, and somehow a victory for evil people.

No, instead, we are going to give the Federal Reserve more power to control even larger chunks of our economy and banking system, and then we're going to pretend it works.

Remember when the Savings and Loans went bad because unscrupulous or greedy or risk-addicted people found away around banking regulations? Once those were tightened and taxpayers paid to bail out people who knowingly invested in unsecured savings, everything was OK again, right?

At least until the stock market crash over computerized trading, or the derivatives scandals, or Enron, or--jumping back in time again--junk bonds....

Just like McCain-Feingold didn't actually fix campaign finance, greater governmental regulation can't actually fix the financial markets, because they employ legions of lawyers and investment analysts to spend their days looking for nothing but loopholes and other fields that haven't yet been restricted.

In a sense, the regulatory band-aid approach is the financial equivalent of the old saying that Generals spend most of their time preparing to fight the last war.

Which also allow us to overlook three very important realities:

1) Increasing the power of the government to manage complex, nonlinear systems like the financial markets is an exercise that has never worked satisfactorily beyond the short term. Why? Because nonlinear systems lack the necessary predictability over the long run to be controlled with conscious, hierarchical inputs. They respond primarily to bottom-up, self-organizational stimuli. It sounds good, it makes people (briefly) feel good, but it doesn't actually accomplish long-term desired changes.

2) Perpetuating the expectation that the success of the so-called American Dream requires each generation to do better in material terms than the previous one is not only erroneous but dangerous. There will always be ups and downs for the whole society and its individual components. It really sucks to live in a down-turn, but, hey, down-turns in early modern history (and today even in China or India) have always been marked by mass death, mass starvation, or debilitating wars. We get higher unemployment, families forced to move back together, and a bunch of foreclosures, and we think suddenly we're fighting World War 3.

3) No matter what the government does, your life and the lives of your children will change in massively unexpected (and often traumatic) ways over the next few decades. The era of Cheap Oil is over, even if we drill out our shores, because there are a billion Chinese and a billion Indians competing for that oil now. Until we pass a major paradigm barrier that changes the way energy is produced and/or utilized, we're in for a roller-coaster ride that no government can halt or even slow.

And none of this matters until we learn to stop whining. Bad things are going to happen to good people, to innocent people. Those around them will hopefully do what they can to mitigate the bad things, but they are going to happen.

As with the settling of the West: "The cowards never started, and the weak died on the way."

It's not fair, it never was, and it never will be.

Government can't make it fair; government can only (temporarily) transfer some of the unfairness from one group of innocents to another.


Brian Shields said...

Boo freaking hoo. America's middle class has turned into a bunch of soft, whining, self-centered McBabies, and they are teaching their kids to do the same.

I'm glad the housing market crashed, the economy turned south, and gas prices rose, because it is slowly teaching these people who live well outside of their means off of their credit cards that they have to get back to basics. Cash and Carry, forget about keeping up with the Jones', and maybe put a little away every month after you dig yourself out of debt.

These people have noone to blame but themselves, instead of looking for a Big Brother bailout.

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