Published 5/16/09 www.MinneapolisExpression.com
Two Bubbles
The wisest among us—those few who foresaw this imminent economic collapse—avoided direct calamity, but were still caught up in the resulting political and economic repercussions. And they are considered the “fortunate”.
How about the other 99% of people who didn’t notice this bubble as it was happening? For them, the damages range from inconvenient—not eating out quite as often, to the devastating—losing their home or retirement savings.
There is much to realize about the interplay between different bubbles that occur in society. To better understand them, we need to examine these relationships as well as decipher what factors allow bubbles to wreak havoc as they do. Bubbles are dangerous and a destructive phenomena—but only potentially.
Economic Bubbles
There are a thousand versions of the same story across America today of people who have been shocked, horrified, flabbergasted, and left speechless; so many seemingly blind-sided by today’s crisis. Countless Americans simply stepped on the social track and were, in a sense, victimized for taking what was considered smart, advisable action: buying more then they could reasonably afford or lend out more than could reasonably be paid back.
In many examples this kind of social “follow the leader” behavior is not so harmful. This kind of “American Mob” mentality happens all the time with fads like Tickle-Me Elmo and pop sensations like the latest American Idol winner. In these minor, more benign examples, people do not put themselves into harms way while riding the wave of popular trend.
It’s not so trivial, however, when it is people’s livelihoods that are at stake. In the late 90’s, American’s “followed the leader” toward an over-investment in dotcom stocks. Many people lost money. Until last year, a bolder, more pervasive example of this mentality helped to create a system making it popular to make bad home investments. This inflated housing market was a statement about the excess and mismanagement of a nation’s, bank’s, and citizen’s capital. The Federal Reserve Bank gave away money to banks at incredibly low interest rates, so the banks lent irresponsibly, which led to the citizens borrowing recklessly. All the while, the government, through its various offices and agencies, threw its enormous weight behind the entire process. It was an entire culture gone astray.
Both the dotcom and the housing bubbles were examples of the American Mob putting itself behind the financial 8-ball.
Population Bubbles
The Baby Boomers, resulting from the returning soldiers from WWII, have always created a wake in their path. The music they grew up with—The Beatles, Dylan—will always be regarded as “the greatest” partially because of the Boomer’s popular weight. Today they are retiring and we are inundated with what appeals to their aging concerns, i.e. Viagra.
But their numbers create more than mere culture bias and marketing focus. They overburden social programs like Social Security—we face real, large difficulties because of socialized elder care and the population inequality the Baby Boomers represent. Whether pensions, Social Security, Medicare, and other retirement/aging expenses, this population bubble is costly, indeed. Unfunded liabilities as those just mentioned are in the trillions and no answer is in sight.
By themselves, the two bubbles described (the housing bubble and Baby Boomers) are unique and stand alone in their source and structure. The housing bubble was a cultural err, a nation wrapped up in a momentous surge. It was a societal binge that every sector drank up. Today’s result is a hangover of massive lost capital, jobs, and a markedly reduced level of excess for Americans to enjoy. The Baby Boomers, on the other hand, are a byproduct of WWII. They are a demanding pull on society’s resources. Now as they become most expensive and least productive, the toll becomes very heavy.
How do the two bubbles relate? In 2008, these two bubbles collided. On the eve of the Baby Boomer’s retirements, a time when a disproportionate amount of society’s resources needed to be available for their (the Boomer’s) disposal, our capital dried up. As well, whose retirements were most effected by the Dow plummet? Given their relative clout and current positions, we were witness to a panicked legislative effort referred to as the “Bail-outs”. Two bubbles intersected, demanding legislation or the Boomer’s 401Ks be sunk.
And the collision doesn’t spell the end. The destruction of these bubbles will continue on future generations. We are patching up this system with the financial support from those who didn’t do any over-consuming—future tax payers. Younger generations, already stuck with the bill for the weighty Boomer’s retirement in the form of Social Security and Medicare, are now stuck paying to prop up financial institutions to save the Boomer’s retirement accounts.
This is a side effect of the Baby Boomer’s numbers and influence rather than a statement about their intent. Just as when too many of one party is in power (no checks and balances equals corruption), so too, may be the unabashed influence of one over-populous generation. In other words, any generation would probably be as reactive and proactive.
This brings to light the necessity to review governmental policy and its impact.
Like the consumer fads of Tickle-Me Elmo mentioned earlier, population bubbles, too, might be merely benign. Watching Viagra ads is annoying at worst. But we reside in an economic system including elements of wealth redistribution. Because of this, we have our society exposed to the risk of a more populous generation coming along and “sinking the ship”. As well, the more political pressure a generation has will potentially sway current public disbursements of funds to themselves.
Today, we are seeing this two-fold concern occur. 1. Economic programs that require future generations to pay for current ones—Social Security, Medicare—are becoming overburdened. 2. A larger generation of people benefitting themselves at future generation’s expense with the recent string of bailouts.
These are the natural repercussions of a socialized system.
Overview:
Broaden your view to see other factors at play when trying to understand this recession. Look back at the source of the boomers—WWII, and its main source—The Great Depression, which was a bursting bubble that led to the birth of Social Security. We come full circle.
That the Great Depression and the Baby Boomers’ presence played a significant hand in the today’s crisis helps to reduce aim at any current group of people (home buyers, banks, etc) as being solely responsible.
Also, people are not angels—they will exploit opportunities for their own security.
Bubbles, as these, seem to be an occurrence and product of humanity’s expansion into new realms of challenge (war) and opportunity (ecommerce). So to lessen the impact of these bubbles by shaping our society in such a way as to minimize the effects of these seemingly inevitable events ought to be our goal.
Every regulation to protect the citizen helps society to become rigid and everyone becomes involved in other’s decisions—good and bad.
