New Proverb: Failure Breeds Bail-outs

I really like Victor David Hanson. Here are two gems from a recent post of his musings:

1) There has to be an end to these serial bailouts—financial, the insurance companies, now cars, next cities and states, and soon mortgage holders (we will de facto punish those who struggle to pay their mortgages on time on homes with negative equity, but reward with reductions those who are late or don’t?).

Aside from the fact we are broke and are $10 trillion in debt (a large aside), there is an existential problem here. Without a concept of failure, there can be no success. If we always offer the excuse “too big to fail” to save corporations and firms that were run into the ground by greedy or stupid CEOs, brokers, and traders, or that defaulters always were victims rather than occasionally foolish or even sly (e.g., 2nd and 3rd mortgages taken out for consumer purchases, or as efforts to flip houses), then nothing changes. Learning, as Aeschylus says, comes from pain. All our childhood admonitions from “failure breeds to success” to “try, try again” are rendered null and void. We don’t want to live in a T-ball limbo where there is neither success nor failure, but just an endless slog in between.

And:

Thoughts on a recession

I remember the recession of the early 1980s well and it was not pretty. In 1979 I applied for an academic job and was told there were 4 tenure-track openings nationwide in my field and 150 active candidates with Classics PhDs competing for them. When I then turned to farming, the first crop loan I co-signed on was in fall 1980 and taken out at an interest rate of 16%. By 1983 the price of raisins had fallen from $1,400 a ton to $480 in a single year. The local raisin cooperative went broke, and renounced their capital debt to their own members (we lost $70,000) whose vineyards had just plunged in value from $15,000 an acre to $4,000.

Things, in other words, when one measures inflation, interest rates, and unemployment, were far worse then than now. I used to wonder why my grandfather had saved two barrels of used, rusted bent and worthless vineyard staples in the back of the barn amid rat nests and spider webs, salvaged from an old vineyard that was uprooted in the 1950s. By 1983 I was reusing them all to mend vineyard wire. We may get to that, but so far we are not in such a mess yet, despite the Great Depression/FDR rhetoric.

But even more importantly, there are already self-correcting mechanisms under way. Oil has crashed like no period in history. Gas is below $2 a gallon and getting even cheaper. The country is already saving over $1 billion a day in imported fuel costs from its former highs and that affects everything from transportation to manufacturing.

Talk about stimuluses—if such a $2 gallon savings from previous highs continues, the average commuter may save $1500 a year.