Wednesday, October 15, 2008

How would Americans respond to another great depression?

While I am not predicting another great depression, it is being talked about on the Internet due to the current world-wide financial crisis. And not just by the usual the-world-is-ending-buy-gold-and-ammo crowd. President Bush and Treasury Secretary Paulson are also doing their part by suggesting that a depression is possible unless the government “rescues” the troubled financial institutions. (“Rescue” is Orwellian for “bailout” in case you were confused.)

The Great Depression of the 1930s paved the way for more government intervention into the economy and severe limits on economic liberty, primarily through New Deal policies restricting voluntary employer-employee arrangements. And just like the camel’s nose in the tent, government has been expanding its powers ever since. Would the government attempt to use another depression as justification to expand its control over the economy? (That is a rhetorical question as the answer should be obvious, especially in light of how 9/11 led to more government intrusions into personal privacy.)

But the point of this post isn’t so much how the government would respond, but how would the people respond? Are we softer now? Are we less part of our communities now that we couldn’t count on our neighbors in tough times? Would we act like the New Orleans residents who had become so dependent upon the welfare state that they simply waited to be saved by others? I think it is likely that some will look to the government first for help. But the optimist in me thinks people eventually would return to being more self-reliant and more community centered. The barter of goods and services would help tie a community together. Churches and other faith-based organizations would once again return to being the first line of defense against hunger. And a more cautious attitude toward debt would return where buying on credit would no longer be nonchalantly viewed as the first method of buying something.

My parents were children of the Great Depression. While they were poor, their childhood memories are not that much different from children who grew up in other, more prosperous times. But the lessons they took from that time were different. They understood the importance of saving first and delaying immediate gratification. They didn’t buy something until it could be paid for with cash. They were not wasteful. They did not buy on impulse but out of need after careful consideration of the alternatives. As school teachers, my parents weren’t rich but they never borrowed money for anything. They never owned a credit card. The past ten plus years I lived my life the same way as I am 100% debt free. It is a freeing experience. I recommend it.

While I am not hoping for another depression, if one were to occur, it might be the catalyst that forces us to change our personal and national appetite for debt. If we continue at our current rate of deficit spending, we will become slaves to the lenders. Current Congressional Budget Office projections have government spending consuming 55% of GDP by 2049. The government currently spends 20% of GDP. And that was before the $1 trillion financial bailout rescue and pork bill. In addition, American’s personal debt is at an all time high at 140% of disposable income. It is time to get back to how our parents and grandparents viewed debt – as a necessary evil not as the preferred way of buying stuff. In other words, we will have to learn to live within our means.

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