Wednesday, October 1, 2008

George Will Hits it Out of the Park!

A Vote Against Rashness

George gets it right when he notes that ultimately, we the people are the problem in this matter.

Concerning which, a timeless political trope is: Government should budget the way households supposedly do, conforming outlays to income. But the crisis came partly because so many households decided that it would be jolly fun to budget the way government does, hitching outlays to appetites.

Beneath Americans' perfunctory disapproval of government deficits lurks an inconvenient truth: They enjoy deficits, by which they are charged less than a dollar for a dollar's worth of government. Conservatives participate in this, even though deficits fuel government's growth by obscuring its cost.

The people can emulate the government because credit has been democratized. Democratization of everything is supposedly an unquestionable good, but a blizzard of credit cards (1.5 billion of them, nine per cardholder), subsidized loans and cheap money has separated the pleasure of purchasing from the pain of paying. Furthermore, the entitlement mentality fostered by the welfare state includes a felt entitlement to a standard of living untethered from savings.

The credit crisis is still not really yet a crisis. People are still trying to find a way to reinflate the bubble. People are upset because assets are finally, FINALLY starting to be priced at what they are worth instead of what can be loaned against them. As has been anguished over by the media we have had huge amounts of paper wealth melt away as well it should since it wasn't true wealth. If some parties manage to hold strong and do not bail out these banks, the cost of credit might once again be higher than the cost of doing business with cash which is as it should be.

For almost two decades the cost of credit was cheaper than cash since interest rates were so low and real inflation was a bit higher. You essentually got the money for free and paid back a bit less than was owed. You can find thousands of articles that advocated never paying off mortgages, or even paying off low-rate credit cards because the rate of return on anything else was better. We cannot endure as an entire nation of debtors who makes our way through the world treating everything as a giant carry trade that generates free money forever.

So let this line of reasoning and the institutions that pursue it fail. There cannot be several more national "refinances" to try to fix our problems. We must face up to them now.