Alexander Tytler once noted that democracy “can only exist until the voters discover they can vote themselves largess out of the public treasury.” While Tytler was referring to the decline of the Athenian Republic, the comment certainly reflects current events. In an effort to appease voters in a troubled economy, the Democrats and Republicans have come together in a rare show of bi-partisanship to give the American public $600 each during an election year…
Not wanting to be the party that said no to giving the public “free” money, Democrats and Republicans in Congress and the White House are working to expediently get money to the taxpayers to help avert an economic recession. Why, because they want to keep their jobs and buying votes from the taxpayers is a good campaign sound-byte. The problem is, it’s the wrong solution.
The problem with the current economy is one of greed. The mortgage companies, eager to cash in on the real estate boom, didn’t properly approve loans. They knowingly gave loans to people who couldn’t afford them hoping, like the home buyer, for a quick turn around on the loan for fast profit. The home buyers, also greedy for money, were all too eager to sign horrific loan agreements. Everyone, home buyers and mortgage companies knew that house prices were rising too fast and that it wouldn’t last forever. The problem with gambling, is that there is risk. Now people are losing their homes and mortgage companies are collapsing before our eyes. It may be cruel to say, but maybe they had it coming.
You see, back in the 80s and 90s, there was something called the Savings and Loan Crisis. Over 1000 lenders failed because of poor management, corruption, and risky loans. The government stepped, bailing out the industry with taxpayer money. Sound familiar? It’s because it’s happening again. The loan industry is once again calling on the government to bail them out.
So today the government is once again stepping in, making deals with the big mortgage brokers to hold off escalating loan rates and allow many of these home buyers an opportunity to refinance. I think that this was a smart move. It seems like a win-win for everyone. Mortgage companies don’t get stuck with overvalued foreclosures and people get to keep their homes. And it didn’t cost me or my unborn children anything.
But is wasn’t enough. Now our elected officials want to give about $600 to each taxpayer, costing roughly $100 billion in money that the government doesn’t have. While $100 billion might seem like a lot, the United States has a gross domestic product of roughly $14 trillion. That makes the combined $600 checks less than a 1% of 1% blip in the economy. Even more interesting, the government doesn’t want you to spend that money on debt. Instead, they want you to buy something expensive and unnecessary.
Here’s some facts about American debt:
- American consumers owe about $2 trillion dollars in debt
- Over a third of which is credit card debt ($700 billion)
- That’s roughly $20,000 per household (not including mortgage debt)
- Non-mortgage debt has increased more than 41% in the last 8 years
- 43% of American families spend more than they make each year
- Personal bankruptcies have doubled in the last decade
Perhaps the solution to the economy, is to deal with the credit/debt of Americans. Instead of increasing the national deficit with a check that will likely amount to little impact on the economy, maybe our elected officials can help the average American in a significant way. The deals made to limit interest rate explosion in the mortgage industry was a good start. Maybe start into the credit card companies next. The problem is too much credit is being given out, with the companies seemingly eager to cash in by skyrocketing interest rates when the consumer spends too much and can’t afford the payment. Maybe reduce the amount of credit people can have, as well as find a way to control interest rates. You still want to reward those with good payment history versus those with bad, but we don’t need to continue in the direction that we are going. I’m not an economist, so I don’t have the perfect solution. But I think that reducing personal debt and keeping the credit lending institutions from abusing consumers is a great way to get the economy back on track. Not only on-track, but much healthier. A $600 check might seem nice, but it is only a band-aid on a broken system.
For the second time in less than a decade, the elected officials in Washington are going to write Americans a check. Once we figure out that we can get a check anytime we want, the end of our way of life is in sight…
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship
.”– Alexander Tytler