The Inevitable Boom vs. bust Cycle

Inevitable? You’re f-ing A right it is, and here is why:

Human nature.

When times is good, as in the 20’s and in the last decade, we feel good about ourselves and our positions in life. We spend money. We take out loans. We begin to see those investments that would have, ten years ago, been considered risky as hell, as being totally normal, every day things. All of those above things simply act to make the up cycle that much bigger. Economies love the spending of money. They LOVE it. The economy keeps going up, up, up, until it reaches a pre-determined, yet wholly invisible threshold, where the gains from that point on are fake. People have overspent. They’ve run out of money to spend. The banks are beginning to get nervous that they’ve lent too much to too many, and slow down the lending spree. All that we need now is a catalyst. It could be anything. In this case, it was home foreclosures exposing the entire real-estate market to be built up on fake money. In 1928, it was marginal spending and trading being exposed, showing the stock market to be built up on fake money. Either way, it results in the bust cycle rearing it’s ugly head.

So what can we do about it? What should we do about it?

To both of these questions, I say, nothing.

Now, as soon as all of the left-leaning “government can fix it” folks in the audience stop chattering and gasping, I’ll tell you why.

It resets the cycle. The same generation that spent frivolously and wantonly in the 20’s re-learned what it meant to live for tomorrow, and to be frugal and save. If the 20’s had been allowed to continue, unfettered by marginal trading, something else would have brought us down. Wanton, uncareful crop usage, brought about by favorable climatic conditions and the carefree, anything goes attitude of the 20’s would have resulted in agricultural collapse (and it partially did, in Oklahoma, anyway). I guess my point is that human nature demands boom and bust cycles, because as soon as we get comfortable, we begin to destroy ourselves with frivolities and the throwing of caution to the proverbial four winds. This inevitably brings about another bust. The folks that lived through the depression became frugal, wise, and savvy to what it means to do without. They lived within their means from that point forward. In fact, I truly believe that the depression set us up for victory in WWII, because I seriously doubt that the materialistic, good-times society of the 1920’s could have handled the deprivation associated with a real world war.

The folks of the depression era handed down their frugality to their children, and them to their children, and through each generation, the message got watered down. Now, the current generation is being reminded what wanton infrugality will get them. If it weren’t for the housing markets failing, something else would have gotten us here, eventually. It is basic human nature, and human nature cannot be overcome. My hope is that we learn from this, and re-set the cycle so that we may pass down this lesson of frugality to our children and grandchildren.

I might add one more point. There is one way to eliminate the boom vs. bust cycle. The way to eliminate this cycle is through absolute and total socialism, by eliminating any boom and keeping us all in a constant state of bust. As long as we aren’t comfortable, and we are struggling to meet the next day’s needs, we won’t have the ability to set ourselves up for the next fall. If you never leave the first step of the ladder, you have no where to which you may fall.