Wed, 25 Feb 2009 01:00:23 +0000 – By Phil KerpenDirector of Policy, Americans for Prosperity
The shocking collapse of our financial system should have taught us an important lesson about the structure of our economy, heavily-dependent on consumption expenditures paid for with borrowed dollars. When the flood of borrowed dollars abruptly stopped, the over-inflated housing market collapsed and other markets followed with frightening speed. The lesson should have been that you can't just keep on borrowing forever, spending lots of money that you don't have. Instead we seem to have learned the opposite--that we just need to find fresh piles of money to keep the whole thing going. As my friend Jim Pfaff noted at his anti-stimulus rally in Denverlast Tuesday, this is Madoff-nomics, writ large.
Our bubble economy was based on a similarly unsustainable flow of good money following bad--pervasive debt. Households had too much debt with home equity loans and credit cards, corporations had overleveraged balance sheets, and governments had too much debt-bonded indebtedness at the state and local levels as well as federal deficits.
Millions of Americans have suffered major losses because they believed the prices of homes, stocks, and other assets puffed up by all this debt would keep spiraling upward forever. Their money is gone now. But instead of winding down the scheme -- increasing our savings rate and, painful though it is, going back to consuming only what we can actually afford -- the whole thrust of government policy has been to inject enough new money to get the whole scheme back up and running. The stimulus and all the bailouts force taxpayers to be the suckers who try to keep these rickety pyramid schemes up and running for a little while longer.
The $300 billion housing bailout from last year is up in smoke, so President Obama wants another $275 billion, before the ink is even dry on the $800 billion stimulus plan. Next up is another trillion-dollar plus bank bailout. It's all more debt to finance consumption of things we can't really afford. And all it buys is a little bit of time for some folks to stay in homes they can't afford. More time to punish people who prudently sat on the sidelines waiting for the madness to end.
When will enough be enough? When will people who played by the rules, accepted the consequences of their own risk-taking, went to work every day, paid their own mortgages, and paid their taxes say they've had enough of carrying the folks who won't pull their own weight?
Last week, CNBC's Rick Santelli gave voiceto a seething frustration shared by millions of Americans when he called for a new Taxpayer Tea Party to reassert a belief in the basic fairness of our founding principles. I can only hope his revolutionary spark becomes a wildfire and forces our political class to change course.
Mr. Kerpen is director of policy for Americans for Prosperity.