America's borrowing party is over, and the bill is due

November 19, 2008|By RON SMITH

Here's one example of how "progressive" ideas fall victim to tough times: The City Council in Atlantic City has reversed the smoking ban inside the city's casinos, enacted just this year. The anti-smoking movement has suffered this surprising setback because gaming revenues are falling and a lot of casino employees are losing their jobs. It is hoped this will spark some upturn in business, and offset a competitive disadvantage with slots parlors in New Jersey's neighboring states that allow smokers to shorten their lives while gambling.

If one wants to know the way the wind is blowing, it's much better to pay attention to this kind of development than to listen to Treasury Secretary Henry M. Paulson Jr. explain another of his changes in strategy in bailing out/rescuing/investing in or otherwise trying to stem the relentless deleveraging of the world's economies.

Just to cheer myself up the last few days, I've been reading through the latest edition of Manias, Panics, and Crashes: A History of Financial Crises, by Charles P. Kindleberger. I've always enjoyed looking at the history of man's economic pathologies and how they all resemble one another. Mr. Kindleberger was amplifying and updating the timeless work of the dour Scot Charles Mackay, who published his Extraordinary Popular Delusions and the Madness of Crowds way back in 1841. One famous quote from the book that has great explanatory value is, "Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one!"

As the prophet explained, "There is nothing new under the sun." It's good to have this in mind as the politicians keep trying to figure out how we can possibly save ourselves from ourselves when things have deteriorated to this extent. Judging from the response last Friday to local Congressman C.A. Dutch Ruppersberger's appearance on my show, a lot of people don't think the politicians in Washington have any answers the people can believe in.

He says it took courage for elected representatives to ignore public displeasure and pass that $700 billion-and-counting bailout bill. What about having to sweeten it with $150 billion in earmarks, pork barrel projects, whatever you want to call them? Well, the legislators are good folks, he said. What should we call a typical session of Congress - "When good people do bad things?" (You can listen to the Ruppersberger radio interview by going to my page at WBAL.com).

Dutch said it was important not to call the bailout a bailout, but rather a rescue plan. Why? Does that change the nature of the thing? Of course not, but the American people have certainly given evidence in their bottomless appetite for debt that they may be stupid enough to believe just about anything. They believed that easy credit was a good thing. They believed they could buy things - especially houses - that they couldn't afford, so why shouldn't they now believe that the very thing that caused the current slump can be cured by creating more easy money?

For years, we have been borrowing money from foreigners who work hard and save a lot of what they earn. We took that money and bought things we couldn't really afford, because we hadn't saved anything. We called that prosperity. It was. But it came at a cost. And the bill is now due.

What Mr. Ruppersberger and most of official Washington now want us to do is to resume the behavior that got us to this point in the first place. Does this sound insane? Of course it does, but I'll tell you a little secret, just between you and me: They don't know what else to do. I did have one caller who said that as a small business owner, he's had a close-up look at American consumers and thinks that if there's any upswing at all in the economy, he and she will be right back in the borrow-and-spend game.

Maybe I have more faith in my fellow Americans - or maybe I lack the hard-earned perspective of that caller - because it seems to me the party is over. I think it will be a long time before the average American, the engine that has driven the global economy, again buys into the idea that we can borrow, tax or gamble our way to prosperity. Can't do it as an individual. Can't do it as a family. Can't do it as a nation. Can't do it. Period.

Ron Smith can be heard weekdays, 3 p.m. to 6 p.m., on 1090 WBAL-AM and WBAL.com. His column appears Wednesdays in The Baltimore Sun. His e-mail is rsmith@wbal.com.

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