As angry as many people were about the bailout of Wall Street, something else makes people just about as angry: falling stock prices. It is probably for this reason that Washington decided to take the risk and push one of the more outrageously extravagant spending programs in the history of the world. The benefits of rising stock portfolios are concentrated while the costs of a bailout are diffuse. In the political calculus, then, politicians were betting that they would come out ahead.
What’s really at issue is a deeper problem that is culture-wide: the intolerance toward failure. We can’t face it. It is probably a symptom of the economic boom during which all stocks go up, all bets pay off, all homes rise in value, and everyone is slightly richer today than yesterday and half as rich as tomorrow. You just can’t lose. It was true in Tulipmania, the South Sea Bubble, and it has been true in the United States for some ten years or more.
This is the mentality that spreads throughout a society in which the drug of loose credit — based not on savings but rather the paper products of a printing press — spreads to every sector. Every investor is an amazing stock picker and every home buyer a financial genius. But the illusions don’t stop there. The ethos of genius inflation permeates everyone and everything, so that there emerges a culture-wide resistance to the very notion that someone might not be up to snuff.
For an example, I’m thinking of the usual scene at soccer or baseball practices in the civic leagues. No matter what the kid does, there is always someone around to say, “Good job.” Those two words are said tens of thousands of times during the sports season. Everything is a good job, and there are no bad jobs, no mistakes, and certainly no failures. Improvement is part of the structure of the universe, so of course there is no such thing as failure. If you do and do and do, you can’t but improve.
So it is in economics and business during boom times. Every day is a profitable day. Every stock must go up. Every business is a success. There is no downside risk. All banks pay the big bucks to depositors, and they keep your money safe. The only risk is that by putting your money here rather than there, you are choosing something less profitable over something more profitable.
It’s this way in school where the Lake Wobegone model (“all kids are above average”) is universalized. If a kid makes a failing grade, there must be some explanation that lies outside the volition of the student himself. It is a “failing school,” a bad teacher, or some circumstances in life that mysteriously conspired to prevent the student from achieving the high level of accomplishment that is his birthright.
It’s true in our personal lives, too (an insight I owe to Jorg Guido Hulsmann). The freedom to fail has been replaced by the implacable human right to succeed in all walks of life. The words “mea maxima culpa” are unknown to us, and not only because they have been removed from the liturgy: It is because nothing is ever our fault, much less our most grievous fault.
Everyone else is to blame for any mistakes or conflicts. We are all personally infallible. Maybe you have noticed this. When was the last time you heard anyone say something like: “I was wrong to say X. I’m so sorry.” Not lately? That’s because we are all always right, always winners, always profitable. Anyone who denies the great truth is a lout. Anything that stands in the way must be smashed.
And so it is that masses of people, heavily invested in the stock market, were devastated to see their stocks reduced in a matter of days to a fraction of what they had been. They were aghast, as if some principle of natural law had been violated, and so someone should just wave a magic wand to make the problem go away. The Bush administration was there to wave away the issue with its magic printing press.
But is it really gone? Is there such as thing as markets that are only profitable and never present a downside risk? It’s ridiculous. The whole idea of profit is bound up with the undeniable reality of uncertainty; profits accrue to institutions and individuals that are better able to act in the face of an uncertain future than others. If there were no downside risk to life, there would be no upside, either.
But in inflationary times, we are tempted to believe that we can have all the success we want and none of the failure. So the entire country is filled with people wailing and whining about their devastating stocks losses, pretending as if they had no idea that there might be a downside to keeping (I should say spending) all their savings on stocks or homes.
The stock market collapse has even been likened unto 9-11, as if it were an act violence. The tone of the response has been that bailouts are a simple matter of justice and morality, the same as punishing terrorists. We only need to “get tough” on whatever forces led us to this regrettable situation (which was imposed from the outside).
In fact, falling stocks are an extension of human preferences — real flesh-and-blood choices made in the marketplace in response to the dawning of reality. But tell that to your dinner party guests — you’ll have a roll thrown at your face. An inflationary culture can’t handle the truth. So we will march to the polls soon and vote for whomever tells the most compelling lies. The paper that made the boom has turned the stuff in our brains to papier-mâché.
Don’t throw a roll, but here is the bitter reality: The bust is good. It is needed. It will right our economic structures. It could also help repair the damage that inflationary credit has done to our outlook on life. Maybe in the future, instead of expecting someone to yell “good job” at everything we do, we will learn to see merit to recognizing that we are not so hot at everything in life.