Saturday, January 19, 2008

Thanks, Washington, but the economy doesn't need your help

I have a few cherished Philadelphia Phillies bobblehead dolls on a bookshelf in my basement. When M and I aren't looking, our 3-year-old son likes to play with them. So not surprisingly, one day I came home to find Mike Schmidt with his arms snapped off.

"I've told you before: DO NOT TOUCH," I admonished my son while super-gluing Schmidty's limbs back into place. "It's not your toy to play with. Now leave it alone because you'll break it even more."

The "broken" economy
I find myself saying the same things today--except directed at President Bush, Bernard Bernanke, Nancy Pelosi, and all the others in Washington scrambling to "fix" the economy. The stock market is swooning, economic growth is slowing, and people--make that voters--are screaming: "The economy stinks and Washington doesn't care!"

So to show they have a heart, our government officials will offer up what many want: $150 billion to spend in the form of tax rebates, and lowered interest rates for borrowing money "more affordably." But isn't spending and borrowing how we got here in the first place?

As I see it, economic and investing forces aren't broken; they're working quite well. For example, when demand exceeds supply, prices drop (as with the housing market today). And with high risk can come punishing losses instead of soaring gains (as banks and mortgage companies have had to relearn).

No short-term fixes
What is broken is general perception: that Washington must do something to fix the economy. No, it shouldn't. Tax rebates while fighting a multibillion dollar war fought on two fronts and running up a monstrous federal deficit is a bad idea. Making borrowing more attractive while more people are struggling to pay the debt they already have is a bad idea.

No doubt, things look bleak right now. They will likely get worse in the months ahead. Unwinding the housing bubble of the last few years will take some time and involve some pain. Believe me, I don't enjoy seeing that M's and my 401(k) is down about $13,000 since the end of the year alone, and that our townhome has lost about $15,000 in value over the last several months.

But I have little faith that Washington's short-term fiscal band-aids will make things better in the long term. They won't change $90-$100 per barrel oil or fast-rising health care and education costs. Or Americans' general tendency to spend more than they earn.

Instead, the President and Congress should just leave the economy alone. "Don't touch it. It's not your toy to play with. You'll just end up breaking it even more."

Then again, those warnings don't really work with my son, either.

3 comments:

adam brown said...
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Anonymous said...

Couldn't agree more! This is the naturally-occurring check and balance to the financial mistakes made by many. Any potential "rescue" only hurts those of us who have remained fiscally responsible in the most recent era of excess.

barb michelen said...
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