How I Explained The Economic Crisis To My Son

At dinner, I mentioned that I had sent e-mails to our Senator and our Congressman about the economy expressing my concern regarding the enormous proposed bailout package. I didn’t even notice how attentively my almost 6-year-old son was listening to what I was saying until he started trying to articulate in his words what he had understood. Noticing that he needed help understanding what I had just said in grown-up speak, I tried to explain. Here’s what I said.

Monopoly by *Aldalambe
Monopoly by *Aldalambe

“Remember when we play Monopoly, there’s you, me, and the bank? Now imagine if there was another player (let’s say mama) who borrowed from the bank a lot of money to buy a property. So, you and I have some money, but mama has no money because she bought the property, and the bank has no money because it lent the money to mama. Now you come to pass Go, but the bank has no money, should we give the bank money?”

His initial reaction was no we shouldn’t because that’s our money. But then I mentioned to him that if the bank had no money, the game could not go on. It was fascinating to see his face as he internalized our conversation. He suggested some decent solutions one of which was to take some paper and make fake money with it.

This description is unfortunately not too far from reality the way I see things. The only solution that is being suggested is to basically print more money. Sure that may cause the game to continue but I fear that we’ll not only pay more in taxes to cover the massive deficits, but also we’ll pay in cut programs and jeopardized future initiatives, and most importantly in further dilution of our currency and our reputation. I won’t even mention the moral hazard issue and a number of other issues.

I understand that the alternatives are not easy. However, remember that the people who bought the houses and paid the incredible inflated amounts for them, paid these sums to another player(s) in this economy. Where did this money go? To be sure, some of it got invested in Lehman stock (and other instruments including houses with inflated values) and lost its value but certainly not all of it has been lost to depreciation of values. Take a look at this graph about the money supply.

I’m not an economist but in my humble opinion, if we print more money, we’ll simply dilute the value of the dollar in the long run even more (read groceries more expensive and retirement accounts able to buy even less) and we’ll perpetuate the bubbles exacerbating their effects. I have faith in Secretary Paulson and Chairman Bernanke and hope that they have excellent teams at their disposal. However, I believe Congress needs to take its time in crafting a solution to the fundamental issues. This decision is too big to be made in a week because this country is too big to fail.

In the meantime, we’ll just continue playing the Monopoly game on our kitchen tables, since there’s no room for us at the table where the real games are being played in our name…

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