Paybacks Are Indeed a (well you know …)

Young Billy Economy had just graduated from high school.  He had earned decent grades, but had not received any scholarships.  He did not have any money saved up for college, but he did have a long-range plan.   He would borrow money for college, study arduously, get a degree, get a great job with a high salary, work very hard and then someday, have a big-ol’-pile of money.     

So he applied for a student loan and was approved.  However, in this fable, he received his entire four-year loan in one lump sum up front.  Billy sat and looked at the newly acquired funds.  And then Billy had an epiphany.  “If my goal was to acquire a big pile of money” thought Billy, “then I have achieved my goal very fast without having to do all that work!”

Then Billy took the money, ran off and partied like a rock star.  He frolicked with the chicks from “Bankers Gone Wild”.  He engaged in multiple encounters with that promiscuous “dame” Becky Housing.  He injected derivatives.  He engaged in back-door financing and sub-prime deals.

He was having a great time with his wild, lascivious, lifestyle until one morning when he awoke and called the bank to get more money.  To his utter surprise he was told his account was dry.  He rolled over and found a fat, ugly, Greek, woman in bed next to him. (Bloggers note:  I think Greek women are very beautiful and know several attractive Greek ladies, however for purposes of the story, this woman was lacking important assets).

“Shall we do it again, dahling?” she purred.

“I’m out of money! exclaimed Billy.

“Get out of my bed now, you worthless piece of crap”, she demanded.

So now young Billy found himself broke and forlorn.

Now you might think this is a modern, economic-based, version of the story of the Prodigal Son, but it isn’t.  There is no wealthy father to bail Billy out and Billy is not at all repentant.  He is sorry that the money ran out, but he is not sorry for his behavior.

You might think that Billy is back to “square one”, but in effect he is much worse off than when he started.  He now owes the bank for the large student loan and he can’t get another loan because he wasted the first one.  He still needs to get a degree and now he is behind schedule.  He will have to work his way through college, which means it will take him much longer to graduate.  And unfortunately his first job is a night shift telemarketing job soliciting contributions for a political campaign. “No ma’am, he’s not inept, he just needs a few more years to really fix things.  Now can I put that on your Visa card?”

The Lesson

We basically partied like economic rock stars starting in the mid-90’s.  We feasted on cheap foreign-made goods.  We created a big Internet bubble. We pumped up the money supply and threw cash around at random.  This fueled an enormous housing bubble that did not pop, but exploded.  Our government watchdogs and regulators showed the same discipline as Secret Service agents with Columbian call girls.

And we all benefitted.  We didn’t object to these actions because people don’t care about the sins of others if it benefits them.  The problem is that after the crash, we did not all suffer equally.  Some of the worst offenders kept their illicit profits, while many innocent people lost their jobs and/or their homes.  A free-market, capitalist, system is not fair, just like life.  I think the aughts (00’s) should be labeled the “Enron Decade” because the total books “were cooked”.  Our stocks weren’t as valuable as we thought they were.  Our houses weren’t as valuable as we thought they were.  And our economic growth was based on lies.

Because we were irresponsible for so long, the Great Recession didn’t take us back to “ground zero”.  It put us in a big hole, just like Billy Economy.  That is why we can’t “snap back” from this recession as we have from previous ones.  This is why growth has been so anemic.   This is why unemployment remains so high.  Yes, bad choices made by the current administration have contributed to our lack of progress, but if the economy had been managed “perfectly”, things would be better, but certainly not yet good.  

It is going to take several more years of tough work to dig us out of this mess (just like Billy again).  Some people have said we are going to experience a “lost decade” (economic stagnation) similar to Japan.  I prefer to label it a “Payback Decade”, a payback for our years of “reckless” economic behavior.  And in this case, payback is indeed a bitch.