We, the Optimist Editorial Board members, are not economists. But it does not take a business major to know our country’s current financial state needs improving.
To oversimplify, Americans have been spending more than we should. In terms of the ever fluctuating business cycle, our economy enjoyed what was perhaps an unnaturally long upswing because of government regulation, priming it for a steeper fall than even what a normal business cycle would have prompted. And certainly, now are we falling.
When our economy was on the rise or stable, people could ask for more loans than they could afford to pay back at the time and walk away unscathed. For instance, in the housing market, buyers could purchase a house for more than they could actually afford with money they did not actually have because when they later sold the residence, it had accrued more worth and would sell for more than what they paid for it, negating that initial, overly ambitious loan.
The government promoted such practices, making its goal to increase the 70 percent of home-owning Americans to 80 percent by encouraging loans for lower-income borrowers.
It stuck by that goal, regardless of whether these individuals would be capable of repaying the money when the housing market reached its next natural decline and regardless of warnings from people like Warren Buffett, who TIME Magazine calls “the nation’s most successful investor” and the Bush administration’s White House chief economist, N. Gregory Mankiw.
The dangers of entering the downward spiral of debt are clear: as people fail to repay their loans, banks fail to repay companies like Freddie Mac and Fannie Mae, who borrow money from both the Federal Reserve and other countries at low interest rates. With national debt already a monumental issue, debt to other countries brings obvious political ramifications.
Now that we are entangled in this mess, our elected representatives have picked a plan of action: the $700 billion bailout, which is really the $700 billion bailout including the billions of dollars of pork-barrel spending those representatives demanded before passing it.
The purpose of this bailout is, basically, yet another loan. The government loans money to lenders to keep them from failing before the housing market and general economy can pick up, at which time the lenders will, ideally, repay the government money. Why should we, as college students, care? Most of us are one to four years away from entering the workforce ourselves. Generally, the lasting, most significant impacts of economic decisions tend to take hold eight to 10 years after their implementation, meaning what those in power decide now, we will have to deal with just as most of us are starting our careers. We want this decision to be a good one.
But this is neither the end nor the final solution. It is a result we are only beginning to contemplate. We have to stand up, dust off and look for the economic stumbling block we hit the first time around to avoid an instant replay.
We need to realize lenders will lend more money than we should accept. We must take responsibility for our own finances and not trust bankers to look out for our interests when our capitalistic system requires them to watch out for their own. We need to avoid spending money we do not have and live frugally when necessary. “Keeping up with the Joneses,” unfortunately, is not always conducive to keeping up with our bank accounts.
The bailout is a temporary fix. It is a hand up to companies who should have been more careful loaning money to people who should have been more cautious asking for it. It may be necessary, but it also may tell lenders to expect a government bailout after handling funds irresponsibly. Regardless of how we came to this point, whether the bailout is necessary or even beneficial – those points are all arguable and still inspire discussion – it is done. Now we have to look to the future.
With a presidential election looming in November, it is up to all of us to do the research, decide what we believe, discover what our candidates believe and vote accordingly.
Money does not grow on trees. Neither do good leaders, and neither do good decisions. At this point, apathy is no longer a harmless, apathetic force. We are going to have to work for a better economic future for our nation, starting with making good financial decisions for ourselves.
