“Bad Parenting”

The “bail outs” and “rescue plans” we see springing up and expanding every day remind me of bad parenting. It’s like mom and dad have a kid who keeps screwing up, and they keep bailing him out, getting him off the hook, paying for his mistakes.

The boy is acting irresponsibly, but the parents are not willing to let him suffer the consequences. “We can’t let him fail” they say, “if he goes down it will affect our whole family. He just needs a little boost and he will start doing the right thing.”

But he doesn’t, in fact he takes what they give him and uses it to get further into trouble, and for even more selfish pursuits.

The other kids in the family, the responsible ones, resent what is happening, realizing that they are essentially paying for their brother’s mistakes and that he is pulling them down with him.

Bad Parental Example

And once we start using the family metaphor, with the bail-out parents representing the government, we have to look at the example those parents are setting for the kids. They are spending irresponsibly. They want to be popular with their kids so they are buying them all kinds of “earmarks.” They are borrowing like crazy and getting further and further into debt. No example of delayed gratification or of saving or of surplus. They keep buying things they can’t afford and taking on more projects and obligations than they can handle.

These parents are piling up debts they will never be able to pay. Their kids will inherit them.

When things start going badly, instead of hunkering down and trying to get along with less or to start saving a little, they just borrow more and spend more, saying “We’ve just got to jump start this family and spend ourselves back to how happy and rich and over the top we used to be!”

Never Underestimate Greed

One thing that good parents do, even while loving and believing in their kids, is to recognize that with all their hormones and passions and self-centeredness, those kids need boundaries, rules, regulations. You can’t just let them do whatever they want.

Even those of us who believe passionately in the free market system with its incomparable motivation and its invisible hand and the its regulating elements of prices and of supply and demand-even we who believe in all that-must never underestimate the power of greed. We must understand that people, given the chance, and given the cloak of complexity or anonymity, will rationalize a way to take a disproportionately large piece of the pie.

So there is need for regulation. The lack of it created the robber barons of the early part of the last century, and the Wall Street robbers of the early part of this one. But, as in a family, if the regulation is excessive, it will stifle initiative and dim motivation.

Good parents respect the agency of their children and understand that they need a lot of freedom and a lot of access to find their best and truest selves. They respect their inherent goodness and altruism, but they also recognize their capacities for rationalization and greed, and they set up rules accordingly.

Markets are more Rational than People

While the bail outs and stimulus plans stir hope in a lot of us, and make us want to get back to our own personal borrowing and spending ways, the markets seem to be more critical.

More government and more socialism and more people eating at the public trough troubles the subtle inherent intuition of markets, and stocks tumble every time a new and artificial government initiative is supposed to boost them.

Like the kid who is supposed to respond positively to a gift but instead gets more spoiled and self-indulgent because of it, the markets keep biting the hand that is trying to feed them.

The “Vodka Solution”

Does it drive you a little crazy when the talking heads of politics and media keep saying that the need is to start spending more and borrowing more? We’ve got to free up credit they say, so that people can buy more cars and clothes and stuff. Then afterward they say Oh dear, we gave people money but they were feeling so insecure that they saved it instead of spending it-that will never do! We can’t have this saving, we’ve got to get back to spending and borrowing to get this economy going!

What if the problem all along has been too much spending and too much borrowing and not enough saving or sacrificing or delayed gratification? What if it is the debt and the over-extending on the micro level (us) and the macro level (government) that got us into all this trouble in the first place.

Aren’t all the efforts to get borrowing and spending going again a little like treating a hangover by giving someone a bottle of vodka?

The scariest part of the family metaphor is that it makes it easier to predict where the whole thing will end. Parents who borrow and spend in wild excess and who neither teach nor demand responsibility from their kids will eventually go bankrupt and leave a mountain of debt that their kids will inherit and cannot hope to pay. Does that parent/kid micro predict and foretell what will happen in the government/citizen macro?

But what if we were to take a little wider view? Perhaps one reason our solutions are not working is that we do not understand the problem. Are we sure that what we are experiencing can even be explained with economics? Are we sure that we don’t just have economic symptoms and that the real root-cause of the problem does not lie elsewhere? In part 2 (tomorrow) I will share what I think is The Real Cause


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