I read articles and listen to commentary about the bailout of the US financial industry and wonder, “Does giving people money solve their problems?” I’m not an economist or a financial guru so I won’t try to pontificate too much in this post, but I am a concerned citizen of both the United States and the World. Each of us has a relative or a friend that has been bailed out on multiple occasions and then chooses to spend the bailout funds unwisely. Eventually this same person manages to slip back into the same hole that their beneficiary just dug themselves out of.
Why? Why do we help? And why do they fail to improve?
I don’t know. I just sit back in awe at the spectacle that is before us. You have to admit that it is a very interesting and tragic conundrum that we find ourselves in. How can the financial industry be spending the Federal Aid package by providing bonuses?
How? Easy. Someone internally just wrote the checks and it was done. This is the same thing that our dysfunctional family and friends do with the money we provide them. They write a check just the way they did before we gave them the money. And the great thing for them is that once you give somebody money they can do whatever they want with it. After all, it’s their money now isn’t it? If you didn't think the money would be spent wisely maybe you shouldn't have given it away. Or maybe you should have been more careful about how much, to whom, and under what conditions it could be spent.
In Charles Dickens classic, David Copperfield, he wrote,
"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery."
This was written in 1849. 160 years ago and yet it is as true now as it was then. In the book David Copperfield learns this valuable lesson from Mr. Micawber who is thrown in jail for spending “twenty pound ought and six”. While visiting Mr. Micawber in jail young David is promptly told by the man that spending beyond his means would make him “miserable”. Immediately following this statement Mr. Micawber convinces David to lend him a shilling for Porter. The Micawber family moves into the prison with Mr. Micawber and enjoys a more luxurious life than before thanks to friends and family that feel bad for them and send assistance to them in their “dire” circumstances.
We are a society that has annual expenditures of “twenty pound ought and six”. This is not limited to just the financial sector. It goes across many sectors and even into personal finances. The long-term result of outflows exceeding inflows, according to Mr. Micawber, is misery.
So what do we do now?