I had an email conversation with a friend this morning about a particular point I teach my students. This individual flew off the handle about how we teach our student "banks pay interest to savers as incentive to save." He rattled off a long email about our our financial system has been ruined by greedy bankers and the Federal Reserve. I had two points of response for him and I will lay them out here for you.
1) Students of economics (more especially eight graders) need to learn how the system SHOULD work. Part of why the banks and the economic system fails us on occasion is because people do not understand how it works. Also, if more people were/are educated about economy the less panic there would be in times of economic down turn. Chicken Littles abound when the economy turns south for its every decade down-ward cycle. Our economy is almost designed to have valleys. Thus, we need to educate our students on the benefits of banks so they can make money in the boom years when money flows freely. It's a simple thought if you get right down to thinking about it. Plus the way things SHOULD be ought to be taught in every subject. It is just good education. If we taught them all the greedy little tricks and dirty little secrets than someone would pitch a damn fit about that too.
Along the same lines, I replied to is email with the response that if you are not part of the solution than you are part of the problem. Investing is critical in times of depression. Banking even more so. We have to keep the economy moving, even if slowly in order to recover. One does not stop peddling going up the hill on a bicycle do they? Why would we stop investing when there is a depression. Trust men, if I had money you can beat ( and ultimately lose) you ass I would be out there investing like crazy. Yes I would lose money, but if you have the guts to be investing in a depression, you have the guts to invest a lot in a depression.
2) My second responding point is that the economy (believe it or not) is in good hands. Despite some of the greedy hoarders that run government agencies, our economy is run by people with far more education in economics than your or me. What does not cause me to fly off the handle when I read about government economic interventions is a bastardized version of the economy given to my in my college economics classes. I say it have been bastardized in that I have modified it to fit Virginia SOLs. Think of it like this:
The economy is a bathtub, and a bath tube with let four hot/cold handles. One handle is labeled TAXING, a second INTEREST RATES, a third GOVERNMENT SPENDING, and a fourth GOVERNMENT BORROWING. The job of the Federal Reserve is to keep the bath tub full and to keep it relatively warm...it is after all a bathtub. The Federal Reserve, Congress, and the President is to determine which of the handles needs to be turned, if it needs to be hot or cold, and just how hot or cold it needs to be. The most important part of this is that different administrations and Federal Reserve chairs have different philosophies as to what justifies a good temperature for a bath, and which handles to turn to keep it that way.
This understanding keeps me, along with what I know about the economy, from running around like Chicken Little when we hit an economic snag. I understand that the way President Obama, President Bush, and my friend would/do fix the economy is going to be as different at the three characters. Different adjustments suite different situations. Franklin Roosevelt fixed the economy with supply sided measures designed to correct a supplying economy. Presidents Bush and Obama have attempted (and done well I think) at using demand sided measures to correct out faulting consuming based economy.
What my main aim with my friend, and this blog post was/is to show that we cannot and should not panic. We should look at the measures taken, when not greed filled, by those in control of the economy and see what they are trying to do. President Roosevelt had his detractors in his day, just as President Obama has his today. Give this a chance. As my economic professor told me 'We're not out of a recession until we're in another one." Not the most optimist way of looking at things but if you think about it, it is
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