I have a good friend who loves to gamble. He probably spends about $20 every day on scratch cards. That doesn’t seem like a good way to spend your money, considering these cards are designed so that it is much, much more probable that the gambler won’t break even, regardless of how many cards they purchase. Yet, he has probably spent over $10,000 on scratch cards since he turned 18. His parents are worried that he could have a problem with gambling addiction. He has risked a lot of money, but he’s convinced that he will win big eventually, and his investment will be nothing compared to the profit he’ll make.
That same friend’s father took out a $10,000 loan a few years back. He studies the stock market ever so carefully: always reading The Wall Street Journal as he drinks his morning coffee, and constantly checking the status of his stocks over his lunch at his mediocre middle management job at a small company in Boston. When Wall Street crashed, he lost a lot of money. His stocks suddenly were worth nearly nothing and he had to sell them to cut his loses. But, unlike his son, his money wasn’t really his to lose. He lost $10,000 of his bank’s money, and now has to pay that money back, plus interest, despite his investment net losses. In the long run, he’ll end up losing nearly twice as much as his son lost.
My friend’s dad always told him that he had the gambling problem. But, who turned out to be the biggest loser? His father gambled with nearly the same amount of money, but lost much more in the end. Yet, America’s economy is built on risks like the one his dad took. Banks hope you put your money to good use, and you hope that your money comes back to you in a large enough amount that you don’t lose any money trying to pay off your loan. And for the most part, Americans love risk because it is often highly profitable. Many of us are taking risks right now, being at Wesleyan. We could have graduated high school and gone straight out into the working world. Instead, we hope that investing roughly $200,000 and four years of our lives will in the end allow us to make more money than we would have made if we didn’t come to Wesleyan. For some people, this risk is a necessity. You can’t get a lot of jobs without a degree. If you want to be a scientist, a doctor or a lawyer, you need a degree. But, we all take the additional risk of choosing to go to a school that costs over $50,000 a year, as opposed to a state college that may cost only $20,000, or even less in many cases. We choose to take this risk because we think that College A is better than College B, and that a degree from A will hopefully be more likely to lead to our desired job than a degree from B. That may be the case sometimes, but not always.
So why aren’t Americans afraid to take these high risks, when there is so much uncertainty involved? Well, for the most part, it’s because there is no “real” money involved. Loans facilitate risk because risks can be taken without immediate losses. Loans can be deferred and payments can be made slowly. You’ll see a person taking out loans to invest in something that seems like it could be profitable, like a small business or a rising stock. But you rarely see someone working to save up all the money in order to make that same investment. Why? Because it hurts a lot more to lose your hard earned cash, when you could be losing someone else’s instead.
However, in the current state of the economy, people need to start buying scratch cards and start risking their own money. Our economy cannot be built on the back of credit, because the losses are substantially worse. How is this economic crisis any different than the Great Depression, or the crisis of 1980? A capitalist economy built on credit is always going to have constant crisis like this one because eventually, due to competition, people will be forced to take big risks to get ahead, and those risks, such as sub-prime loans, are likely to fail.
Clearly, the solution to our economic problems is simple: stop taking risks with money you don’t have. If you make $50,000, spend accordingly. Please don’t think you should take out a $300,000 loan for a new house. You are obviously going to be unable to pay for it, and then you’re going to be in for a bit of a hard time when the bank takes away your house. Secondly, banks have to start thinking before they give out loans to these idiots. You can’t just give your money away and hope that it’s going to be magically returned, when any intelligent analyst would tell you that’s not likely. Sure, now you’ve got a house to sell to make the money back, but it’s pretty obvious that housing prices aren’t a constant. So now you’re out almost $100,000, and that money isn’t even really the banks. It belongs to the people who have accounts there. Now everyone gets screwed, and it’s all due to good old American stupidity.
People need to get their heads out of their asses and realize that for every risk they take, their failure is going to have an affect on the country as a whole. If this economic crisis teaches us anything, it’s that the current economy is not, and will never be, stable. If we want to be capitalists, we need to prepare for the annual economic meltdowns. If we’re afraid of instability, then maybe we should just give in and let the smart people in the country do the thinking for us. But, we all know how Americans feel about socialism…
Leave a Reply to Anonymous Cancel reply