The Economy, and Its Reset-Button Mentality
When I was growing up as a kid in Brooklyn my friends and I would try and save up to go bowling every other weekend. It was at the bowling alley that I first learned of the concept of the “reset” button. The reason for its existence was simple: occasionally the automatic pin setter would not detect that a ball had been thrown and thus would not clear the pins and prepare for the next frame. So you needed to press the button to continue with the game. In the seventies I designed many microprocessor based systems and they all needed a reset button to restart the device after the inevitable software crash. But the reset button wasn’t really a ubiquitous idea back then.
Enter the PC. Soon the population at large became familiar with control-alt-delete or a quick toggling of the power switch. So here was an interesting concept; you could have a “do-over” with relatively little (unless you forgot to save your document often) pain. And in a matter of minutes and in the privacy of your own home or business cubicle you could recover from a mistake either self induced or brought on by the actions of others.
Of course, it wasn’t painless. So many of us learned to save often, back up etc. and thus reduce the pain of the inevitable “blue screen of death” or other vagaries of computer-user life. While some of us had tech support hanging around to bail us out from really terrible happenings, most of us learned to slog it out on our own and deal with it.
Today we spell reset “T-A-R-P.” Somehow between then and now we have decided that the reset button should be part of non-machinery things. So, if you invest in a CDO and it goes bust, hit the old TARP button and get your money back. 401K in the soup? No problem, hit the TARP button. Negotiate a bad deal with the unions and make your car company uncompetitive? No problem: hit the TARP button and get a do over.
Pressing the reset button on your computer has instant effect but it is rarely without consequences. But it gave us a “safety net” mentality; if we make a mistake and fail it will be annoying but not deadly. Unfortunately this mentality has crossed over into our financial thinking from the individual investor, through the corporate CEO right up to our representatives in government at the local, state and federal level. This allowed us to take completely and obviously nonsensical risks which got us into the economic predicament that we find ourselves in today.
By my calculations at least $1 trillion dollars has been thrown at the problem so far. No one seems to know when we will stop going to the well for more. One trillion bucks is about the annual income of the top 1% of US tax payers. So if we tax them at 100% for a year we perhaps might be able to pay for the reset button but that will certainly not cover the incredible deficits looming in our future. So the U.S. government will need to either seize assets (as Argentina did with their 401Ks) or let individuals, companies and governments deal with their own reset issues and take the lumps for the mistakes they made.
Yes Virginia, there is no Santa Claus, free lunch or painless reset button.