That ain’t workin’ that’s the way you do it

Money for nothin’ and chicks for free

Now that ain’t workin’ that’s the way you do it

Lemme tell ya them guys ain’t dumb

 – Dire Straights, “Money for Nothing”

Late last weekend, key members of Congress and the Treasury Department finally agreed on the specifics of a plan to bail out Wall Street and the mortgage lending industry to the tune of at least $700 billion.  (The actual price will probably be considerably higher, however, as the $700 billion figure only takes into account the first wave of bad loan-buying.)  While a strange bedfellows coalition stopped the bailout bill in the House on Monday, the Senate will vote on a slightly altered bill later today, and is expected to pass it.  Whether the House would pass the bailout bill on a second try is uncertain.

Other writers will focus on the assault on our basic freedoms that this move represents — since the government will in effect own most of the homes in America, as well as hold controlling shares in several banks.  While I completely agree with this analysis, I want to focus on the irresponsible philosophy that made this whole situation possible.

Of course, with a crisis this serious there is no shortage of people to blame.

  • We should blame the federal government for the pressure it put on Fannie Mae to lend to “minorities and low-income consumers” — thereby making ideology, rather than people’s credit or ability to pay, the most important factor in lending money.
  • We should blame the Federal Reserve for keeping interest rates unnaturally low, thereby distorting market incentives and encouraging reckless borrowing and spending.
  • We should blame the banks that came up with irresponsible mortgage vehicles — like no down payment mortgages or adjustable rate mortgages — to market to subprime consumers.  (Although, to be fair, the banks were under a mandate from the government to sell to subprime customers, and the mortgage vehicles were the best ways they could come up with to limit their risk.)
  • We should blame the corporations and banks that bought the bad mortgages and then bundled them together and sold them off, as well as any actor who accepted them.
  • And we should blame each and every person who bought a home they didn’t intend to, or had any real doubt that they could, pay off.

One actor many Americans may be reluctant to blame, however, is the person in the mirror.  I’m not just talking about people who purchased homes irresponsibly, either — people who bought when they should have rented and kept saving, or bought a 6-bedroom house when a 2-bedroom one would have sufficed.  I’m talking about people who made living outside of their means a way of life — a category that encompasses the vast majority of Americans.  This entire economic meltdown wouldn’t have been possible were it not aided and abetted at every step by John and Jane Q. Public. For too long now, Americans have subscribed to a Money for Nothing philosophy — a belief that we could spend and live how we pleased without repercussions or the need to think of the future. It is this philosophy which I blame most for the current fiscal crisis.

Americans as a people were once known for their thrift and industriousness.  Under President Eisenhower, America was the world’s greatest creditor.  Under President George W. Bush, America has become the world’s greatest debtor. True, average Americans didn’t make the decision to borrow trillions of dollars from other countries to finance wars or military build-ups.  Those decisions wouldn’t have been possible, however, if people hadn’t been living beyond their means in the first place.

If a man proposing marriage to a woman suggested that before they married they take out a $100,000 loan, quit their jobs, and live on credit cards for the next ten years without paying the loan back, the woman would either laugh at or slap him.  Yet nearly 50% of voting Americans embraced George W. Bush when he proposed something fairly similar. During his campaign in 2000, Bush promised to radically cut taxes, increase spending (through compassionately conservative initiatives such as No Child Left Behind), and balance the federal budget. No one who didn’t already practice a Money for Nothing lifestyle would listen to someone explicitly advocating that the government adopt it.

I don’t mean to single out George W. Bush, though, as if he’s the cause of the problem or the problem only started on his watch.  (Although the problem certainly became much worse on his watch, it grew under Presidents Nixon, Carter, Reagan, and Clinton.) The problems started with Money for Nothing Americans. They started with people who refused to be content with what they had, who insisted on buying a bigger house, a better car, the latest i-phone, or a fancy vacation without regard to their ability to pay for it.

The thing about Money for Nothing Americans is that they are very susceptible to politicians telling them they can have it all, and who won’t tell them what they don’t want to hear.

Right now, for example, Social Security has a deficit in the trillions and Medicare in the tens of trillions.  In other words, Social Security and Medicare are effectively bankrupt.  Yet Americans still debate how, not whether, the government will take care of them in their retirement.  This is Money for Nothing thinking. Something will have to give: either we’ll have to increase tax rates considerably (greatly reducing our ability to earn a living) or we’ll have to substantially gut (or perhaps even cut) Social Security and Medicare (greatly reducing our security in old age and retirement).

Another example of Money for Nothing thinking is the talk by President Bush and members of Congress about how necessary the $700 billion bailout is to stave off a Recession or Depression.  Yet market corrections are natural aspects of a market economy.  They are never welcome, but thinking people accept them as part and parcel of a capitalist economy.  Trying to stop them not only distorts the economy (by stopping it from correcting itself); it makes the inevitable market correction that much more painful and prolonged when it does come.

These kinds of realizations represent the type of thinking Americans will have to do in the future, and should have been doing all along.  Without this kind of thinking, America will never be able to solve the problems that have led it to the brink of financial destruction.  As long as Money for Nothing remains the philosophy of most Americans, however, no amount of government intervention will solve what ails America.