Tuesday, March 3, 2009

What are we leaving our children?

A lot has been said and written about the massive debts we are running up in an effort to stem the economic crisis. The constant complaint is that these debts will be a burden to our grandchildren.

What I think is being overlooked is what we will be leaving our grandchildren if we don't deal with this economic crisis effectively.

In the late 80's and early 90's, Japan went through the same kind of property bubble we have gone through. The Japanese government, afraid of debt, did not move strongly enough. They started a few, very large stimulus projects and propped up the banks, but did not reform them. They did this over and over, putting patch on top of patch, but never dealing with the fundamental weaknesses of their structure. The result has been a period of no growth, followed by very slow growth. As a result, the children of the generation in charge when the bubble burst have inherited a massive debt and inflexible, ineffective system that no longer has the power to respond strongly to the current situation. They dribbled out unused airports and unnecessary bridges, spending slowly what might have worked if they had spent it all at once. They kept zombie banks operating, sucking money from the economy and not passing it on in the forms of loans.

Back in the Second World War II, our government created a massive (for the time and the value of the dollar) national debt. But we won the war; the problem the money was spent on was solved. As a result, we could leave it behind and turn our attention to building our country and the world. So massive debts will not harm our grandchildren provided we solve the problem we ran up the debts to deal with.

That is so important I will say it again: massive debts will not harm our grandchildren provided we solve the problem we ran up the debts to deal with.

As I see it, whe have these choices:

1. Intervene massively and solve the problem, leaving our children free to turn their attention and effort to growth and innovation.

2. Intervene ineffectively and fail to solve the problem, letting it grow until it paralyzes the economy, locking our children into a paralyzed, ineffective system.

3. Do nothing and hope that the invisible hand of the markets will cause everything to work out--without regard to how long it may take for the invisible hand to do its work or how much people may suffer in the interim. And I am not talking about inconvenience in the interim; I am talking about real suffering--hunger, homelessness, and a permanent underclass lacking the very basics to benefit from whatever good outcome the invisible hand may, possibly, produce. Along with the high possibility that the Keynesians are right in this: the invisible hand will not work at all in this case, because when we finish our fall, it will have nothing to work with.

2 comments:

  1. I vote for intervening NOW so that our grandchildren have a better world.

    I havent' been here for a few days -- been busy so I caught up today ehre and on three posts from last month where I left comments.

    Keep on blogging -- I am really enjoying it.

    ReplyDelete
  2. I was disappointed that you didn't have a new post when I fina;lly got back to blogging. Maybe soon -- I finally have a couple new ones up.

    I see you visited my Turtle Place blog. I should try to get the rest of the photos up as I keep taking them even tho the old computer crashed, I ahve everything on cards sicne last November. . . and yesterday I saw they actually were going to place real benches around. They were all inone group chained together! I will try to finish that blog in the next month or two.

    I am having a hard time concentrating on blogging after my brother's death. I'll try andlet youknow when I get more up. The mural should be there for quite awhile -- at least until they build the new bridge over the Columbia River and bring light rail to Vancouver, across the river to Clark College.

    This project is supposed to be temporary to commemorate the native Indians who gathered at Turtle Place before the white man came and even after.

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About Me

Jacksonville, N.C., United States
Retired teacher, motorcyclist, member of the Patriot Guard Riders, the Christian Motorcyclists Association, and the Moto Guzzi National Owners Club.