THE STUPIDITY CYCLE

At this point it looks very much like the so-called “economic stimulus bill” will pass. It seems the best we can do is complain and take down names. So here is a link to the names of the Senators who allowed this insanity to “advance.” Virginians, please take note that both our senators voted to bankrupt us. Republicans, please take note that both of Maine’s senators, Collins and Snowe, voted to end debate. In addition, Senator Specter of Pennsylvania also voted to advance the cause of pork.  If nothing else, we can take some satisfaction in the fact that this “advance” towards socialism is not exactly bipartisan.

How did we get into this mess?  I fear what we are seeing is part of an unraveling (see here), but some would say we are just experiencing a severe downturn in the business cycle.

What is the Business Cycle?

I have had a few business courses, but I would hardly rate as an economist so I decided it was about time that I looked up the term.  Investopedia provided this short little definition.

What Does Business Cycle Mean?
The recurring and fluctuating levels of economic activity that an economy experiences over a long period of time. The five stages of the business cycle are growth (expansion), peak, recession (contraction), trough and recovery. At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular, varying in frequency, magnitude and duration.  (from here)

This definition defines the character of a business cycle.  It says little about the cause.  After further research, I decided that is no accident.  For example, there is this investment mode called “market timing” (see here).  Presumably, since the goal of stock market speculators is to buy low and sell high, a stock market crash is a good time to buy.  Unfortunately, nobody really knows how to predict a business cycle.   So it is difficult to make “market timing” work especially well.

Consider the definition of Economics.

economics
n : the branch of social science that deals with the production and distribution and consumption of goods and services and their management [syn: economic science, political economy]

What economists do is mathematically model economic activity. Their problem is that economic activity is not entirely rational. Because humans, not machines, conduct and regulate economic transactions, economic activity is inherently unpredictable.  At least, economic activity is unpredictable to the extent humans are unpredictable.   Since we humans make emotional decisions sometimes driven by values and beliefs that we cannot even explain, much less mathematically model, economists predict economic activity with even less accuracy than meteorologists predict the weather.

Nonetheless, it is the job of economists to understand and predict economic activity.  So what do economists have to say about causes for the business cycle?  Wikipedia actually has a nice scholarly little article (here), and this article notes that “the explanation of fluctuations in the aggregate economic activity is one of the primary concerns of macroeconomics.”  The article then goes on to list a bunch of different theories (Encarta does the same here.).  The variety of theories suggest that what causes business cycles is the subject of much debate.  In fact, here is a quote from a professor that says exactly that.

What causes business cycles has been one of the hottest and longest running theoretical debates in political economy. There is a fair amount of agreement on what at least some of the factors are that are associated with the alternation of economic booms and busts, but different schools of thought differ considerably in the relative weight and the causal priority they assign to these various factors. Some schools of thought emphasize uneven government economic policies as the principal cause of business cycles, while others see government economic policies as the key influences working to even out business cycles allegedly brought on by inherent features of the market economy.  (from here)

So What Should Our Leaders Do?

Our leaders are about to spend trillions “fixing” our economy.  Do they know what they are doing?  Consider that some economists think the government causes the business cycle whereas others think government smooths out business cycles.  Could both groups actually be right?  Frankly, I think that both groups are right.

We all know that human beings learn from experience.  Sometimes that is the only way we learn the hard lessons.  The last of the folks who experienced the Great Depression are dying, taking their experience with them.  The Baby Boomers remember these people; they were our parents.  Do we honor what they taught us?

How many of us stop to think what the survivors of the Great Depression would have thought about the great big boondoggle we call the “economic stimulus bill?”  Can we imagine the Greatest Generation spending without even attempting to balance the budget?  Would our grandparents put up with a government that encourages people to loan and borrow money recklessly?  Not likely.  Yet that is exactly what we have done.

I fear the Business Cycle could just as accurately be renamed the “Stupidity Cycle.”  In our hearts, we know the “economic stimulus bill” is foolhardy.  Yet we so much want what we want we accept the blandishments of power-hungry political opportunists over the simple common sense taught by earlier generations.

This is I suppose the way of human beings.  Without bitter experience, we do not truly learn.