Yesterday Ben Bernanke announced that the Fed is “considering” allowing Wall Street firms more time to draw emergency loans. The unprecedented loans to Wall Street began in March when the Fed loaned money to JPMorgan in order to bailout Bear Stearns. On Monday, the Senate advanced a $300 billion dollar housing bailout bill. On Sunday, my family and I hiked our first high peak of the summer season.
Am I mixing my blog posts? What could my hike possibly have to do with the Fed’s loans and housing bailouts?
I have been hiking the White Mountains of New Hampshire for well over 20 years. The peak we hiked this past weekend, Mt. Tecumseh, is one I have hiked perhaps 7 or 8 times. The first time I hiked Tecumseh I was a much younger man; I was literally twice as fast as I was this past weekend. As so often is the case, my physical prowess peaked long before my emotional maturity did. With hiking, emotional maturity means that you understand your limits, you plan appropriate hikes that stretch you safely beyond your current limits, and you have the discipline to commit to the training that is needed to accomplish your goals. With my emotional maturity still growing, I have been able to accomplish hiking goals that I never even thought of when I was younger and much stronger.
On Sunday, at the half-way point, I noticed how comparatively “slow” my wife and I had become. I was at a choice point, I could allow my ego to concoct a story about my declining abilities. I could get lost in my thinking and ruminating about the days when I was faster. Of course, doing so would take me from the present moment, slow me still more, and ruin the enjoyment of the day.
It is easy for the ego to rail against what is; but wisdom lies not in the voice of the ego but in the intelligence that is beyond. I can panic and as a consequence overtrain and risk injury, or I can exercise in prudent ways that will maximize my years on the trails. I can go to the doctor and demand some miracle drug or injection, or I can take time to maintain a healthy lifestyle and a healthy diet. I can overlook my current abilities and plan risky hikes that put me and my family in danger, or I can continue to enjoy the mountains commensurate with my abilities for many years to come. No matter what I do, the stark truth of life is that no measure I take will produce any guarantee.
So what does any of this has to do with the economy? Plenty. Collectively as a society we are like aging hikers who demand that the doctor shoot us up with inappropriate remedies to maintain our youth. When an athlete’s body is artificially maintained, the inevitable decline is even worse. Similarly, when we demand to be bailed out of any losses, which are normally produced by a vibrant free-market economy, we guarantee that we will no longer enjoy the benefits of freedom. And the more we try to stave off loss through artificial means, both the severity and the length of the resulting decline will increase.
Is this hyperbole? Consider the sad case of Argentina. In 1900, Argentina was one of the wealthiest countries in the world; it ranked 12th in the world in GDP per capita. In little over a century, Argentina has fallen all the way to 72nd. What happened? The collective will of Argentines turned away from principles that promote prosperity and instead embraced an ongoing series of fascist and socialistic dictators who promised to deliver what is undeliverable—namely, a centrally planned economy that never suffers from declines.
Is Argentina on the road to recovery? Hardly! The current president of Argentina, Cristina Kirchner, recently increased effective taxes on farmers to 75% and limited farm exports. Since a third of the Argentina’s work force is employed in agriculture and half of Argentina’s exports are agricultural, the country is certain to suffer from further devastating declines.
An economy that never suffers from declines is no more possible than a human being that never suffers from a bad mood. In a dualistic world, bad moods and economic declines are inevitable. Both, however, can be “treated” gracefully; and mental and economic health can quickly return. We can learn to recognize thinking patterns that are generated by the ego; we can learn to drop our resulting problematical thinking. This does not require elaborate interventions; it just requires a willingness to do so.
Human beings, due to periodic episodes of collective excessive optimism and misdirected signals caused by Fed policies, create economic cycles. Markets have a self-correcting mechanism, but only if they are allowed to operate. Instead, we are spending enormous amounts of money trying to maintain that which has failed us. In doing so, we postpone our economic recovery and create conditions for even greater declines.
If we demand that we never have bad moods, or that we hike at the same speed in our 50s as we hiked in our 30s, or that we never suffer economic losses, we will choose what is counterproductive. David Whyte in his book The Heart Aroused observes:
It takes tremendous energy to keep up a luminescent front when the interior surface is fading into darkness. In some ways we are constantly preventing our own rebirth into new cycles and greater lives, and instead work twenty-four hours a day keeping a wraithlike image of our former selves alive long after its time has past. This “night of the living dead “syndrome is just as true of an organization as it is of a person.
I know I don’t want to be a “night of the living dead” hiker—a hiker who can no longer enjoy the mountains because he demands that he always gets stronger. But I am afraid we are choosing to have a “night of the living dead” economy—an economy where all failures are outlawed, and as a result, success is nowhere to be found.