The mind-boggling stupidity that we’ve indulged in was hammered home by a comment almost casually delivered by, of all people, Bernie Madoff, the mild-mannered creator of what appears to have been a nuclear-powered Ponzi scheme. Madoff summed up his activities with devastating simplicity. He is said to have told the F.B.I. that he “paid investors with money that wasn’t there.”Perhaps this can give us some idea of what's happening in the economy. If you had the bulk of your savings invested with Madoff, how would you change you behavior when you discovered that your investments were gone? Would you cut back on your spending? Even if your income was unchanged? Would you want to save more to make up for the lost investments? Would you be more cautious with your savings, not taking a chance on investment opportunities that you might once have tried? Would you at least initially attempt to ensure that whatever savings you had elsewhere was safe, perhaps removing it from it current investment and putting it somewhere that you knew absolutely was safe?
Somehow, over the past few decades, that has become the American way: to pay for things — from wars to Wall Street bonuses to flat-screen TVs to video games — with money that wasn’t there.
Something for nothing became the order of the day. You want to invade Iraq? Convince yourself that oil revenues out of Baghdad will pay for it. (Meanwhile, carve out another deficit channel in the federal budget.) You want to pump up profits in the financial sector? End the oversight and let the lunatics in the asylum run wild.
For those who wanted a bigger house in a nicer neighborhood, there were mortgages with absurdly easy terms. Credit-card offers came in the mail like confetti, and we used them like there was no tomorrow. For students stunned by the skyrocketing cost of tuition, there were college loans that could last a lifetime.
Money that wasn’t there.
Might you also reach out to others who had lost money the same way you did and attempt to form a support community? Perhaps you could provide some comfort (and perhaps more importantly in economic terms financial security) to each other even if you could no longer be sure that you could provide your own security. But would you also be more suspicious of anyone who looked like they might be trying to take advantage of you?
I suspect that many of these things are happening at the national and global scale. Those who have more time to think about it than I should work through these impulses and see what they imply for the economy and the national spirit. Some of them, like increased frugality, will reduce economic activity further. There is little we can (and little we probably should) do about it. People rightfully have become economically more conservative. That's appropriate and wise.
But I suspect that people will be more open to community activities, mechanisms whereby we can support each other, now that we all are more in need of support. But at the same time, we will be especially suspicious of anyone who seems to be taking unfair advantage of these community support systems.