Sunday, December 21, 2008

The Consequences of Not Facing Consequences

It is astounding how one can see something coming miles away and yet people still act stupefied when it comes and have no clue as to its obvious cause. Specifically, it is amazing how some people can be confused as to why every other business seems to be opting for a bailout now that the financial industry has (somewhat) secured one and another one for the auto industry is in the works.

It is because the government has made promises it cannot keep that people are acting irrationally and demanding that they not suffer for it. The government has been making the promise that people will not have to face the consequences of acting irrationally, and with the dangers seemingly removed people feel free to make any type of decision regardless of any consideration, with the hope that the government will have a net ready.

Anyone can see what would result if a parent either did not act on their threats or gave rewards despite disobedience. If a parent threatens to take away dessert if their child does not eat all of their dinner but gives it to them anyways, then the child will cease to believe in the validity of the threat and will actively ignore its presence. The continued practice of this will make the parent's authority dwindle down to nothing.

Our government has bred economic children. Because the government has offered up assistance to the banks, everyone else simply cannot see why they should have to face failure while other people do not. Or, in the words of children, "if he gets a bailout then I get a bailout too!" Sure, the assistance was given under the notion that we would be better off economically, that nobody would be able to get a loan otherwise, but that is not true. If the banks had failed then it would be the case that it would be difficult to borrow millions of dollars, not impossible to get a loan altogether, and the economy would be able to recover from the liquidation of the banks' assets. An important rule to remember is that that wealth creation is what is essential to the health of an economy, not the number of people employed. (Though the rate of wealth production and rate of employment cannot be separated. The greater the wealth, the greater the possibility for wealth creation, which also means a higher demand for employment for those productive endeavors. I am just stating that wealth has primacy over employment and production primacy over wealth.)

In fact, the worst drawback of avoiding consequences is that, ironically, it makes the consequences even worse or come in a different form. Reality allows for no one to escape their consequences, good or bad (“consequences” here is a synonym of "result"); "there is no free lunch." The bailouts, if fully implemented, will achieve the depression it was trying to avoid. When the bailout was approved there was no mention of any new tax or of a redirection of funding, so where are they going to get all this money? By printing it. This makes things worse because then our money will lose even more of its value and will have exceeded economic growth, meaning higher prices will be required to make any sort of "true" profit.

If the government had let the banks fail to begin with the benefit would have been twofold: 1.) the economy would be recovering right now and 2.) a message would be sent to every major business in the economy that everyone must strive to make rational decisions, for their failures are theirs to face.

It is not only harmful economically that the government makes such promises, but it has also destroyed lives. This is why Hurricane Katrina was so devastating.

The government promised that if anyone should happen to decide to live in such disaster prone areas. such as New Orleans, they would be insured against the damages of the storms. Thousands and thousands of people then move into such areas thinking "I am only but a drop in the government's budget", and these drops fill cities. A storm hits, and that's when the reality of the government's impotence comes to surface.

In the case of Hurricane Katrina, the government was inadequate to be able to respond in short amount of time, and was unable to provide aid or compensation to so massive a number of people. Even though people realize that the government was incompetent, they do not realize that this will always be the case (since such aid is outside the nature and proper function of government) and have called for expansions of government aid.

The absence of the government would have stopped any problem from forming in the first place: people would see that help is all but nonexistent, for insurance rates in that area are either sky-high or not available, their lives would be on the line every hurricane season, and, as a result, fewer people will choose to live there.

Even if the government refuses to stop making such false promises, the people can save themselves by understanding that consequences can never be avoided and that no one can collect the burden.

The principle to remember is: you can either drop a stone on your foot today, a brick on your hand tomorrow, or a cinder block on your head next week. The alternatives are unavoidable, but you are able to choose and act to avoid those situations in the future.

America is in for a rough time. With the bailouts we will have to face many businesses calling for the same, with many politicians hoping to try and please their calls due to “economic necessity”, and we will have to face the consequences of not facing consequences.

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