Nation of Gamblers

Posted: September 22, 2008 by jgrantmarshall in economy
Tags: , ,

Are we a nation of gamblers betting that the bail out by the Fed is going to bring things back on track so that we can continue gambling?

I have just read an article, found at http://www.atimes.com/atimes/Global_Economy/JI23Dj06.html , suggesting just this.  In the past couple of weeks, I continue to ask myself (and those around me) what our government is doing with MY money bailing out these companies that have made such bad decisions.  I have not heard many good responses, but the quote below suggests the strongest model of the reality that I’ve seen yet.

Think of America as a town with one casino, in which the only economic activity is gambling. Most people lose, but the casino keeps lending them more money to play. Eventually, of course, the casino must go bankrupt. At this point, the townspeople people vote to tax themselves in order to bail out the casino. Collectively, the gamblers cannot help but lose; individually they nonetheless hope to win their way out of the hole.
Americans are so deep in the hole that they might as well keep putting borrowed quarters into the one-armed bandit. They have hardly saved anything for the past 10 years. Instead, they counted on capital gains to replace the retirement savings they never put aside, first in tech stocks, then in houses. That hasn’t worked out. The S&P 500 Index of American equities today is worth what it was in 1997, after adjusting for inflation (and a pensioner who sells stock purchased in 1997 will pay a 20% capital gains tax on an illusory inflationary gain of 40%). Home prices doubled between 1997 and 2007 before falling by more than 20%, with no floor in sight.

What are your thoughts after reading this excerpt &/or full article?  Anybody care to share some thoughts on why this bail out is a good thing for us?

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Comments
  1. Tim Ramsey says:

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

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