When I was younger and whenever my mother took me to the doctor or a professional (like her banker, accountant or stock broker), she would always say: “Don’t worry son, you’re in good hands, these people are super smart.” Well, lets take a look at some of these “smart” professionals today. Ivy League trained bank executives (and their bashful corporate boards) were thought to be not only smart but also savvy. Politicians (most of which are very rich and successful) were deemed to be smart. Economists and CEOs are supposed to be smart. Not so true anymore.
Is being smart an advantage or a liability is today’s environment?
Sure, I would prefer a highly educated doctor to perform surgery on me, but perhaps, if things go wrong (unexpectedly wrong), I might prefer someone with the label “street-smart”. Most “smart” people have been educated within the same walls as everyone else, therefore, when the world changes, they do not have the ability to quickly adapt. Just because your smart doesn’t mean you don’t get confused when someone moves “your dog dish”.
So we have this trillion-dollar stimulus package that will – according to the smart people – introduce or save 3 to 4 million jobs. I am a little hesitant to buy into this notion. Not just because politicians lie, but also because nobody – and I mean nobody – has studied in-depth what is happening in the economy right now, in school or elsewhere. The great depression is a cakewalk compared to the potential fallout from the current economic mess
It has been widely reported recently that the Great Depression did not end because of the New Deal or the brainpower of FDR, but because of the massive spending bill we call World War II. Shouldn’t the current spending bill have a similar impact? Not likely. After Pearl Harbor, the whole country was fighting mad and would make ANY sacrifice necessary to help the nation. But this time, nobody wants to sacrifice. To quote several friends of mine: “Where’s my bailout?”
A robust economy depends on two things:
- Individuals must feel confident about the future and make spending and investing decisions based on that optimism.
- The government can only manipulate the rule of “supply and demand” for a limited time. (Think, rent control). The housing market will continue to correct until individuals within the economy see such a good deal that it is worth being optimistic about the future, and worth taking a chance.
The stimulus bill does nothing to fix #2 in the long run. Supply and demand will eventually prevail and the housing will get back to normal. Although many thought our new president had the ability to “walk on water”, the public is losing faith in the “smart” people of Washington DC, as they probably should. Fixing #1 takes more than “fast talk”; it requires a sense of shared sacrifice and shared purpose. I just don’t see #1 changing until the housing market fixes itself – in time it will – but it will be a rough ride.
The biggest irony is the fact that the “smart” people will take all the credit when the economy finally turns. Maybe mom was right all along; it just takes time.
* This is an edited guest post by Tony Parker, a contributor-at-large for Saving to Invest.
[Andy – While I do not agree with the entire argument Tony makes, he does have some good suggestions around how the economy will improve. I think it will take time for the toxic assets to be cleared from the economy, but what the government – and all those smart people – is trying to do is speed up the process so that rather than the economy recovering in a decade, it improves in 2 to 3 years. With all the spending and better focus from the new administration, I think this is definitely possible. Call me an optimist.]