Bubbles and busts: An airplane analogy

This morning's reading of Rob Alderman's blog made me think of another analogy of the economy.

Your airplane analogy is good, but I think it can be taken further. The primary problem isn’t turbulence, but that the plane has developed an undersized engine (agricultural and industrial sector) and an oversized passenger compartment (private consumption). A plane like that is only capable of flying slowly, and even slower if it needs to climb.

Every time the stall speed warning has gone off (the economy has slowed down), the Fed has done what every good pilot would have done. It has put the plane into a dive, by adding more money to the system. This makes the plane (economy) go faster, at the expense of altitude. As long as we were sure we were high up, higher than anybody else, this didn’t seem to matter. We stayed focused at airspeed (GNP), not altimeter (national debt).

Today, we’re painfully aware that China’s engines are getting stronger and stronger, while ours are due for a major overhaul. That has caused a lot of simple-minded people to go bananas over the way the altimeter is spinning backwards … to the point where they’re willing to pull the stick backwards and jerk the whole thing into a tailspin. If they do, it will be the end of America as we know it.

Every time we’ve piled up more debt, we’ve given power to our creditors: Power that we’ll no longer have to solve our own problems the way they should have been solved in the first place.

Right now, with the stall-speed warnings blaring all around us, I support trying to jump-start the economy once more by putting the plane into yet another dive. This is something we can’t afford to NOT do.

However, the only thing that can get the aircraft back in airworthy condition in the long run is to drop dead weight overboard, focus all remaining engine power on actual propulsion, and put all available manpower and talent to work improving the system.

The idea that freer markets and even lower taxes will solve this spontaneously, is ridiculous. If left to their own devices, most passengers will continue to spend their energy on useless luxury items or personal “profit”. In today’s speculation-driven economy that means buying some more or less useless asset in the hope that someone else will pay more for it another time (=asset price inflation).

We need leadership. We need to stop doing things that don’t work.

When I say dead weight, I mean things that don't solve real problems. Like putting drug offenders in jail, when on the one hand it doesnt't really restrict the supply of drugs, and on the other hand contributes to destabilizing neighbouring countries, and ends up stuffing the pockets of hardned criminals with hundreds of billions of our hard-earned dollars.

:-j