Looking back on 2008, Time magazine made a mistake in naming Barack Obama its Man of the Year. Oh, certainly Mr. Obama was consequential, but the iconic figure of the year, in fact of our time, was not the President-elect, but Bernie Madoff.
When Mr. Madoff discovered his original investment strategy wasn't working he didn't want to disappoint the people who invested money with him. So he gave them nice returns based on the new money he was attracting by giving the original investors nice returns. Apparently many of his investors figured something was fishy, but they assumed he (and they) were benefiting from insider trading (ripping off other people), not from a Ponzi scheme. They were willing to give him a wink and a nod when they thought it was to their benefit. Surprise!
But Mr. Madoff is not alone. In fact, we have all been doing the same thing for many years--spending money we don't have in the expectation that future growth will cover the shortfall. That works as long as there is growth, but when growth stops the house of cards comes crashing down.
Hence the "housing bubble." People bought houses they couldn't afford in the belief that the value of the house would keep going up and they could sell for more money than they paid. So it didn't matter if they couldn't afford it when it was bought because they would make a pile when it was sold. Everyone knew it couldn't last forever, but most of us hoped to get in and out again before it crashed.
Hence the popularity of Medicare. It is popular because no one today pays the costs of the program. We have incurred $34 trillion in unfunded liability in the belief that someone in the future will pay for it. We shrug our shoulders if we are asked who that someone will be, and add Part D to compound the problem.
Hence the federal budget deficit. Vice President Dick Cheney reportedly told then-Treasury Secretary Paul O'Neill that "deficits don't matter." Deficits don't matter because future growth will make today's $500 billion deficit look like chicken feed. But when the growth stopped, all of the sudden we had a major problem.
And on and on and on. It's not that we've been spending like there is no tomorrow. We've been spending like tomorrow will be much better than today and tomorrow's people will be able to pay for today's spending.
That taps into the American tradition of boundless optimism and hope for the future. And that is fine--except we've neglected the other American tradition of self-reliance. We have been taught we can take risks without consequence. We will always be bailed out--by somebody.
But in fact there is no "somebody." There is only us. We are responsible for our own fates.
Will 2009 show we have learned the lesson? Not if Mr. Obama's stimulus package and ambitions for health reform are any guide.
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