Although chided for his remarks, there is profound truth in Philip Gramm’s comments.
Economist and financial pundits make our current economic problems sound complicated. They make dire predictions. They provide us with histories and detailed statistics. They also have put forth a plethora of alternatives to solving these problems, but none of these are viable because in the end it’s human conduct and action that will make any of them viable.
Explanations of our current economic problems are simple: we allowed a housing bubble to materialize where increasing home prices seemed to have no ceiling, and easy credit came into being as a result -- borrowers and lenders did not have the vision to see that in fact they both could lose -- owning a home became an investment rather than a lifestyle and a place to live -- it had all the appearances of a win-win for everyone; capital markets were thrown into turmoil as a result of dependence on a debt driven economy -- again, debt and credit seemed to be a win-win for borrowers as well as lenders, therefore a bubble materialized in the credit markets as well, where If capital was needed it was borrowed, and if more dollars were needed, well, just print more; the price of oil surged because of investor speculation in future markets, speculator and consumer spending brought about our current price per barrel for oil and price per gallon for gasoline because, as it seems, both speculators and consumers are satisfying a self-fulfilling prophecy of $150 for a barrel of oil and $5.00 for a gallon of gasoline. What’s the demarcating price before Americans take action? Is it $200 a barrel for oil and $10.00 a gallon for gasoline before Americans take decisive action and, at the very least, change their behavior? Or, at what price will there be an attitudinal sea change?
All of this, mirroring the “dot.com” bubble, is a result of “Irrational Exuberance” (Greenspan hit the nail right on its head) where everyone was looking to get rich – just let the good times roll without consideration of its consequence. Our problems clearly come down to a simple human condition: avarice -- the culprit is greed, pure and simple. In this sense, Phil Gramm’s contention that our problems are of our minds is not too far from the truth. Human behavior and action have a tendency to bringing about self-fulfilling prophecies.
Since the end of World War II, we have been in pursuit of the American Dream: a new car and a little cottage home with a white picket fence. It’s this mindset that has got us in trouble.
For some time now (the 70’s come to mind in the case of oil) all the signs of a gathering storm, which is now a perfect storm, were in place and very evident. Americans tend to be reactive and not proactive; Americans, including government and its leadership, can’t seem to see beyond the “end of their nose.” The reaction only manifests itself when the bubble has burst. A solution is anticipated by the time they wake up the next morning, but much to their dismay, there is not a magical solution.
We need to find better ways of resolving differences and ways of being self-sufficient as opposed to going to war in order to “win” a solution, which is costly, and as with our current wars they put a demand on borrowing rather than an increase in taxes; it is easier -- it makes it more palatable -- to go to war as opposed to finding peaceful solutions when sacrifices do not have to be made -- we can war and everything can be hunky-dory all at the same time.
A universal solution to oil dependency is needed, one that solves the energy problem for a nation’s armed forces as well, for as long as a military is dependent on oil there will always be a risk of war.
We need to somehow overcome greed, we cannot in all ways legislate or regulate it, at a certain level, unfortunately, it is an essential ingredient of capitalism, or so it seems. It certainly is a hindrance to an authentic free market.
Viable changes necessary to pull America out of this quagmire will take years to mature. We are the problem and we are the solution. We need to start now with changes in our attitude, understanding praxeology, taking human action, and encouraging innovation. Short term solutions (5 to 10 years) for housing, capital markets, and oil, as well as long term solutions (more than 10 years), are all subject to human conduct and action. In regard to oil, we need to do now what should have been done in the 70’s. We need new ways of thinking about our reality and what really drives our economy, which comes down to, praxeologically, you and me. We are in the driver’s seat.
