How did we get here?

What continues to amaze me is how the most important issue of this economic crisis is also the last issue talked about. How did we get in this mess in the first place?

Turn to any media source, and it becomes apparent that our wonderful politicians are running around like chickens with their heads cut off. They have no idea what's going on.

What they do know is if they don't act quickly they will be out of office next election. So predictably, they are all putting their energy into finding a quick fix to all our economic woes.

After all, as John Maynard Keynes, a 20th Century economist, once said, "In the long run, we're all dead." If that means putting a band aid on a bullet hole, then so be it.

But through all the chaos, one must wonder how we got here in the first place.
When the media or politicians rarely do talk about the cause of the crisis, we are given simplistic and shallow reasoning.

The most common of course, is greed.

The evil and tyrannical corporations are all out to get us, and we are just helpless civilians oppressed by some flaw in the personality of these entrepreneurs. Other reasons can range from under-consumption, lack of confidence, or some people just think the business cycle is an inherent flaw to the market economy.

So can our crisis really be attributed to any of this? Let's assume it can.

Take greed for example. Greed can drive business owners to make poor choices in order to achieve some short-run gain. Perhaps Ford decides to cut 50% of their employees, and increase the workload on the remaining employees. The immediate result, would be lower operating costs and higher profits, in the short-run.

The economy as a whole would suffer from the sudden burst of unemployment, but not to the extent that we would consider it a depression or even a recession for that matter. People would complain and possibly boycott Ford for their actions, but nothing more.

Businesses do this from time to time. They change their strategy, they hire lots of people, they fire lots of people, and sometimes they even go out of business.

Whether greed is the reasoning behind bad business decisions is hard to know. But for the purpose of this example, let's assume that the unemployment caused by Ford was because of greed. A few thousand jobs were lost, that much is certain, but with an economy the size of the United States, it would be just a bump in the road rather than driving off a cliff.
But when we are in a crisis such as this, it isn't a couple hundred jobs lost here and there, it's a systematic failure of our economy.

Unemployment rapidly increased by tens of thousands recently, and not by the fault of one business, but thousands.

Entrepreneurs who were recently apt when it comes to making good business decisions, have suddenly lost all ability to manage. As far as greed goes, apparently there was a nationwide epidemic of greed which suddenly infected all our nation's businesses.

Theses previously benevolent CEOs, have and inexplicably and simultaneously become greedy tyrants incapable of running a business. Not in just one or two areas of the economy, but every area.

So whatever causes the media and politicians give for our economic crisis, whether it be bad business decisions, greed, under-consumption, or even random chance, they must also give an explanation for it all happening at once.

Why the sudden immorality of our business owners? Why the sudden loss of ability to make good business decisions?
When the market system has a built-in natural selection mechanism, existing businesses should exist because of efficiency and the ability to predict the future. How is it possible for the entire economy to fail at once, when they have been so profitable in the past?

These are questions, which need to be asked in order to start understanding this mess. Understanding this crisis should be the top priority rather than making rash decisions based on political gains.


Do you agree?