The Mythical Camel and the Real Straw Which Broke His Back

Pundits and talking heads are filling the airwaves with their analyses of the proposed stimulus package.  Lots of criticisms being offered, and no wonder – the stimulus package is huge thus offering a big target for critics.  There is plenty to criticize.   Besides, the daily talking heads have a massive amount of airtime to fill and so they babble on hoping to stimulate the troubled minds of their faithful just as the politicians hope the stimulus package will spark the troubled economy.

The critics seem to be short on specific predictions and details for what alternative should be followed.   When all you have to do is criticize, the job is not too hard, especially whan the target to be criticized is so massive.  For life if it teaches us anything enforces the lesson that something is sure to go wrong.  So it doesn’t take a whole lot of smarts to predict that something will go wrong.  Besides, when the inevitable happens, no matter what the wrong is, the critics can always say, “I told you so.” 

What would be far more helpful to us would be for the critics to state exactly what they think will happen and when it will occur if the proposed stimulus package is enacted.  Such comments as “too big”, “not enough”, “too fast”, “not soon enough” are really not helpful at all.   What would be more helpful is people taking their economic theories (opinions, ideologies, whatever), and spelling out in specific detail what they think will go wrong, when and why.   With such specifics, we could actually learn something about how these different pundits’ ideas actually work.    We might learn which economic theories and ideologies successfully predict the future.   Thus if someone says, if you do that you will create inflation but deflation happens, that person would not be able to say, “see I told you your plan wouldn’t work” because even though the taken action didn’t produce the desired result, neither did it produce the critically predicted result. 

It isn’t helpful enough to say a plan won’t work, or that it is a bad idea.  Let the political pundits give us the specific predictions of what they think will happen if the proposed stimulus in inacted.  Then we can measure the words of these talking heads against reality, and they won’t be considered wise for predicting “things will go badly” which is no prediction at all; specifically spell out what the negative effects are going to be, otherwise your criticism are more empty on specifics than the plan itself.

Maybe slightly more helpful is pointing to an example of what a stimulus did or didn’t do.   This you can find in Martin Fackler’s 5 Feburary 2009 NY TIMES article Japan’s Big Works Stimulus is a Lesson.   There at least we can see how big time spending impacted Japan’s economy or failed to do so. 

Steven Pearlstein in a 6 February WASHINGTON POST article, “Wanted: Personal Economic Trainers.  Apply at Capitol“, makes the suggesting that we use the stimulus money to hire personal economic trainers for each congressman and senator in order that they learn how an economy really works so that they can make sensible comments and decent decisions based in economic realities and not in their personal opinions or ideologies.   If economic stimulus means increased spending, then he argues government spending is shown to be much more effective than tax cuts for stimulating economic growth.

Part of the problem for me in dealing with the economic crisis is that I do not understand economics.  That is why I read articles like Stephen Gandel’s “Why Your Bank is Broke” (TIME magazine, 9 February 2009).   It has very colorful charts showing how many tens of billions of dollars less the biggest banks are worth after having received the billions of dollars in TARP funds from the government.    The basic reason banks are broke is something like this:  You want to borrow $10 from me.  I only have $1 to my name.  I lend you $10 anyway. ….  Wait a minute you say, how could you lend $10 if you only have $1 to begin with?   That apparently is the lure of capitalism – capital produces more capital, at least on paper.   Banks came to rely not on their deposits and holdings but on supposed profits and money from their investors.   In other words I take $9.50  from friends who trust that I am going to make them money with the $9.50 they gave me.  I lend $10 to you.  My friends get paid back only if I make money on what they entrusted to me.  But if you cannot pay back the $10, those who invested in me lose their money and I now have $.50  left and am stuck holding a $10 IOU that is worthless.   It’s possible that everyone – borrower, lender and investor all end up being losers.   That is as far as I can tell what happened to our economy.  Banks were lending not what they owned but other people’s money (investor’s money), which works as long as those people don’t ever ask for their investments back or as long as the borrowers keep making payments on the loan.  It is a giant pyramid or Ponzi scheme which was being played by more players than just Madoff.   Some want to put all the blame for this on questionable loans that were made to first time unqualified borrowers (see my The Party in which Democrats and Republicans Reveled).   But there is a much bigger picture to the banking scheme of which these questionable home loans were just a part.  They may have been the straw that broke the camel’s back, but that camel was loaded down with an unsustainable system which for a period of time was so incredibly profitable for some as to be addictive to the many.  Breathing this intoxicating air of seemingly unlimited profits, the entire banking system gleefully threw the expanding home loan business onto the top of the pile which the poor camel was carrying.  And great was the fall thereof, or what was realized was the camel didn’t really exist so there was nothing to carry the load.

2 thoughts on “The Mythical Camel and the Real Straw Which Broke His Back

  1. ninemoonjupe

    I agree with the idea of coming up with specifics when criticizing the bill now.
    If you want a readable book on economics, try John Kenneth Galbraith. He, at least, puts things into simple and understandable terms.
    I posted the question to everyone out there, and after doing considerable reading on Credit Default Swaps and the banks, this is far more like any Ponzi scheme than anything I have ever seen.
    We do need solutions, internationally and locally. Anyone have some truly constructive ones?

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