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Economy runs to mommy and daddy
Hats off to our local Congress member, Adam Smith, for the insight he delivered this week.
On Monday, Smith voted in favor of the economic bailout in Washington, D.C. The roller-coaster proposal first failed in the House, then passed in the Senate; it passed in the House and was signed into law on Friday.
Let’s set aside how Smith voted and whether you agree with his vote. At Wednesday’s Federal Way Chamber luncheon, the Democrat explained the uncertainty of the mortgage and credit markets — and that no one in power knew the right answer or outcome.
Smith added another dimension to news reports with tales from the trenches, noting that “no matter what we do in Congress, pain is coming. If we don’t stop the credit market from freezing up, we’re all going to face trouble.”
Smith cited two priorities: Stopping an all-out economic panic, then learning how we got to this point.
Indeed, the nation will learn tough lessons this time around — lessons apparently forgotten since the Great Depression nearly 80 years ago.
As one tale goes, a wealthy New York broker foresaw the Great Depression’s impetus when a shoeshine boy gave him stock tips.
Fast forward to 2005, when everyone seemingly had a shot at owning a home through high-risk mortgages and no down payment. Like the shoeshine boy and stocks, the average and even below-average Joes were buying homes and debt from investors who snapped up properties for a quick sale.
All waves eventually reach the shore. The resulting crash from the nation’s borrow-and-spend habits will wash the economy clean, and the tide will once again recede, ready to feed another wave. This inevitable economic forest fire is for the nation’s own good, no matter how much lawmakers contain the crisis.
On Wednesday, Smith related parenthood to the credit crisis, saying that parents must let children fail and take responsibility for their actions.
But with the government bailout, does this lesson resonate with the working-class family who foreclosed on a house they couldn’t afford, or the CEOs who walked away with millions of dollars amid the stench of failure?
The government plays more of a parental role than Americans care to admit, and different ideologies expect different treatments. With this economic bailout, is the government acting like parents who prevent their college-bound daughter from dating a gangster, or the parents who let their 30-year-old slacker son live rent-free in the basement?
Either way, the government must react to a free market whose curses temporarily conquer its virtues. To evoke the previous parenthood metaphor, sometimes children need a hand regardless of independence.
And while learning from the experience, the public must also take a leap of faith that someone somewhere is manning the light at the end of this tunnel.
Watch a video clip of Adam Smith's speech from Oct. 1: