Brush fires & Economics

The more I read and hear about our current economic problems, the more the forest analogy fits.

We are seeing articles such as this one that compare our economy to our forest management. Prior to the settling of this country, forest and brush fires were a frequent part of forest ecosystems. Every few years, lightning would start a fire that normally burned a few hundred acres before dying out. Because they happened relatively frequently there was little dead brush to fuel real intense fires, and the indigenous animals had developed successful survival strategies. The ash returned nutrients to the soil, and the fires cleared out plants and insects that were a threat to the long term health of the forest. We started meddling in these ecosystems that we poorly understand and the results have been massive changes in the character of these forests. We can't prevent all forest fires, so when one happens now, there are huge amounts of dead brush to fuel them, which results in massively devastating fires that can span several states. After these fires, it takes years for anything resembling a forest to reappear, and even then, the makeup is very different than previous forests. We are getting better, with controlled burn strategies replacing no burn mandates. We still put too much faith in a bureaucrats ability to second guess nature.

We do much the same thing with economic policies. In a functioning free market ecosystem, you don't have a build up of highly volatile loans and securities. Most of the time, they won't take root, and if they do, they get burned off in small, localized bankruptcies and foreclosures. Values go up and down. Not everyone succeeds. Failure is as much a part of the economy as success. We get in trouble when the government tries to pick winners and prevent losers. They have tried to prevent loan failures in parts of the housing markets. They have tried to eliminate any drop in real estate values. They have encouraged the pooling of volatile loans into complex structures in companies so big they are too big to be allowed to fail. They practice a brand of political numerology in which if they can just find the right numbers, everything will magically come out right.

Recently we have had some lightning. The economic forest is burning. We may be able to protect some parts of the economy, but just like the major brush fires we are see frequently in the west, a change in the weather with lower winds, etc. is really what it will take to put it out. Until then, we need to work on some fire breaks.