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Crisis isn’t that complicated

Some people want to believe that our country’s economic crisis is so complicated that mere mortals cannot understand it. Only economists and politicians (hah!) have the brain power and education to decipher the complexity of how subprime mortgages and tightening credit markets have caused this unprecedented crisis. Don’t believe them.

You see, in actuality, most things can be boiled down to simple concepts. Economics, I believe, is one of these. Sure, there are nuances and the pursuit of turning theories into mathematical concepts, but let’s not forget that Adam Smith’s master work, The Wealth Of Nations, was based on extensive observations of actual people doing actual things.

So that leads me back to the current economic situation of the United States. While President Obama stated in the Q&A tonight that he didn’t “think it’s accurate to say that consumer spending got us into this mess” in fact, it did. Consumers bought things they couldn’t afford – houses they assumed would keep appreciating, stocks they thought would get more valuable, or just plain stuff they didn’t really need. Of course, more spending means less saving. So when the economy started heading south and people started losing their jobs, too many people didn’t have an emergency fund to tide them over and help them meet their payments. This isn’t to say that there wouldn’t be an economic downturn or that nobody would be affected by a recession, but if more people in this country were savers rather than spenders, we wouldn’t have the crisis we do.

President Obama was heading in the right direction when he said, “putting zero down and buying a house that is probably not affordable for you in case something goes wrong, that’s something that has to be reconsidered. So we’re going to have to change our — our bad habits.” But our bad habits exceed beyond just stupid mortgage terms, they come from an entire economy that’s survival the government is betting comes from increasing credit and getting people spending.

It doesn’t take a genius (or an economist) to see you can’t spend your way out of debt.

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  1. “The Wealth Of Nations, was based on extensive observations of actual people doing actual things.”

    That is it in a nutshell. The reason I believe in the Austrian Economics viewpoint is because the Austrians base their economic theories on human behavior. They are batting pretty close to a thousand with their predictions.

  2. I beleive the point President Obama was trying to make was that the source of this particular crisis wasn’t consumer over-spending. If that were the case, our crisis would have started a long time ago. That is not to say it isn’t a problem and does not have long-term negative effects on our economy, but it cannot create a recession – it can only deepen one.

  3. But our crisis DID start long ago and it is the result of consumer over-spending and insecure investments. People aren’t able to survive normal economic downturns because they don’t have any savings, or their savings were all tied up in investments that turned out to not be as secure as everyone thought. Sure, the bankers blew it, but if more people were responsible with their money this wouldn’t be nearly as big a deal.

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