Wednesday, May 28, 2008

Stimulus Check Dopes and the Bailout of the Consumer

So what did you with the check the government sent you as part of its bailout? Here's a great site that celebrates the fiscally responsible. Enjoy, the world is well on its way to owning this country.

Link to "How I Spent my Stimulus"

On a separate but related note, please check out the WSJ for its three part series on how Bear Stearns imploded. The government, in my humble opinion, should not get involved in bailing out irresponsible behavior. (BTW, the bailout of BSC and the consumer are one in the same, hence the separate but related note.) The moral hazard is that without the deterrence of negative consequences, we are destined to repeat our mistakes, ala the S&L crisis in the 80's and LTCM prior to this asset bubble. During the Cold War, Mutually Assured Destruction, or MAD, is what kept the U.S. and Russia from annihilating each other. (If Russia launched one missile at the US, the US would launch 1000 back at them, which deterred either superpower from making the first move because the end game would be mutual destruction.)

The bailout is like the parent that pays a kid's bills and then wonders why the kid continues to take risks, overspends, or fails to consider the adverse consequence of their actions. Sometimes you should let things implode. Fear is a great motivator for future responsible behavior. I';ve listed a couple of links to an article about a recent book called "A Nation of Wimps." It's about the impact of "over-parenting" on a child's development.

At the risk of sounding trite, here's a link to Tolman's famous psychology experiment. I'll give you the abridged version. 2 groups of rats; group 1 is fed regularly and all its needs were taken care of. Group 2, is fed randomly, and little attention is paid to them. After not feeding each group of rats so they were hungry, the researchers then put each group in identical mazes where the object was to find the food at the maze's center.

Guess which group went and found the food, and which group waited for the investigators to feed them?*

Sometimes rats can teach us a lot about learning and human behavior...

Link to Tolman's Famous Experiment

Link to "A Nation of Wimps"

Link to Psychology Today Article on Nation of Wimps

* For those who couldn't see the linkage, the rats that were fed randomly didn't wait for help but went out and found the food. The "well attended to" rats that were babied waited for someone to feed them, versus "going out and learning" how to feed themselves.