by D. Jones

Frugal McDougall worked very hard,
Bought things with cash and not credit cards,
And when it came to the things that he bought,
Things that he needed were all that he sought.

Once he was sure that his bills were all paid,
The money left over was carefully saved.
You see in the future he hoped to retire
And knew very well what that would require.

His neighbors were foolish and laden with greed.
They focused on wants instead of on needs.
They went out to dinner about every night.
When you’re middle class that’s one of your rights.

When they got their paychecks they spent every dime.
Having money left over would have been a crime.
Their credit was pushed to its uppermost limit,
When it came to debt they were very deep in it.

When Frugal McDougall would try to explain
The value of saving they all called him names,
So he wouldn’t bother most of the time.
He said it was something like ‘pearls before swine’

Meanwhile the neighbors got credit card offers,
Promising money to fill up their coffers.
Consumed by their greed they filled out every one,
With barely a thought as to what they had done.

And when the cards came they all ran about
Foolishly spending till they were maxed out.
A pool for the yard, perhaps some new skis.
They spent money like it was growing on trees.

Some even went on a cruise to the Med,
Where they all laid around looking tanned and well fed.
No thought was given to how they would pay,
For surely a bill would be coming their way.

In complete disbelief McDougall looked on.
He knew very well that they had it all wrong.
And the foolish idea that was shared by them all
Was that happiness was now on sale at the mall.

He’d been chastened so often he now bit his lip,
For fear if he didn’t he’d let something slip.
His neighbors would learn of his total disdain
For the way that their money was thrown down the drain.

Instead he would focus on his quiet life,
With his quiet children and his quiet wife.
In their simple way their needs were all met,
And their simple life was quite free of debt.

Then one day his neighbor came home joyously
In a gigantic brand new s. u. v.
Frugal McDougall just stood there and gawked,
Confused and bewildered and totally shocked.

He knew that his neighbor made twelve bucks and hour
And shouldn’t have this kind of purchasing power.
And when asked how he paid for this monstrosity
The neighbor replied, “with my home equity.”

The debt didn’t matter, the man was a dunce,
Whose only concern had been “how much a month.”
The neighborhood pondered what he had just said
And one by one light bulbs came on in their heads.

Then sure enough the very next day,
New cars appeared in every driveway.
McDougall now cautioned that they should take heed,
All this debt served no legitimate need,

Instead they were putting their futures at risk.
The response they delivered was angry and brisk.
Frugal McDougall was called a big fool,
And other mean names that were equally cruel.

“We are all rich,” they boldly declared
As Frugal McDougall stood there and stared.
“Our homes are all worth more than twice what we paid!
The good life is ours and should not be delayed!”

But Frugal McDougall refused to be goaded
And as he expected the debt bomb exploded.
The neighborhood values were starting to fall,
Faster and faster effecting them all.

Then as his neighbor stood looking distressed,
The new s. u. v. was being repossessed.
Soon all around, the neighborhood toys,
The ones that had recently brought so much joy,

Were all repossessed or put up for sale.
The pleasures they brought had grown a bit stale.
Purse strings were tightened as jobs were now lost.
It seems the free money came at a steep cost.

Banks were collapsing as everyone bailed
From upside down houses and lifestyles that failed.
All of the debt that could not be repaid,
Was now wreaking havoc that would not be stayed.

Government bailouts now came on the scene
As political leaders were all very keen
To keep credit flowing and money being spent,
So trillions of dollars were foolishly lent,

In a desperate attempt to keep prices high,
A fact that they won’t even try to deny.
These actions were more than a little perverse,
For adding more debt only made the mess worse.

This of course left them with one thing to do.
They needed more sources of tax revenue,
So small businesses that were already hurting
Were saddled with costly additional burdens.

Many scaled back hoping they could prevail
But quite a few more of them now simply failed.
So many neighbors were now out of work,
They turned on McDougall and called him a jerk!

The papers had all said that he was to blame,
Though none had specifically called him by name.
In a foolish attempt to curry some favor
It seems that they now blamed the problem on savers.

They said “greedy savers are hording their cash
And collectively made the economy crash.”
His penchant for saving was very well known.
Poor McDougall’s cover was thoroughly blown.

“Tax him,” folks cried as they all shook their fists
“And tax him some more if he tries to resist!
He has more money than he’ll ever need,”
They cried in a horrid expression of greed.

Poor Frugal McDougall was truly confused,
Saddened, frustrated and now feeling used.
He’d tried to warn people of what lay ahead,
But they didn’t listen and blamed him instead.

The country can never be restored to health,
As long as we’re exporting all of our wealth.
Closing our factories, exporting our jobs
Turning the people into angry mobs

And all of this spending with no end in sight
Is the most direct cause of our national plight!
How did this happen, where did it begin?
This foolish game’s left us no way to win.

Now the brave politicians all deny fault
As the nations economy grinds to a halt
Is this the end of the U.S. of A?
Will McDougall’s country now fade away?

A recent example from the British press: One of the first lottery millionaires punched a plumber and ended up in court, says The Telegraph. Michael Antonucci won 2.8 million pounds in 1995. But he “blew his entire fortune,” reported the paper last month. Now he’s reduced to stiffing tradesmen. The amount in dispute was just 400 pounds, what he was billed for a “gigantic ceiling mirror fitted above a whirlpool Jacuzzi.” He had the mirror installed when he was still flush. Now that he’s broke, he can’t pay…hence the altercation.

The phenomenon is little different when it happens on a national or even imperial scale. Any money that you don’t earn is stimulus. Without the sweat of honest toil on it, money seems to play a pernicious role in history. There are no examples – none – where it produced genuine prosperity. Instead, when a nation suddenly runs into some easy cash, it is soon spending more than it can afford…and getting into trouble.

The Roman Empire is in some measure a stimulus story. It conquered. It grew. Each conquest brought more booty…gold, silver, land and slaves. And each led to more conquests, which brought forth more booty. But the stimulus of this booty stimulated only the need for more stimulus. It did not stimulate real prosperity. Instead, it undermined it. First, slaves bought by rich landowners destroyed the free labor market and ruined small farmers. And then, imported wheat from the provinces – paid as tribute – put the large-scale farmers out of business too. Italy was then dependent on foreigners for its food.

In the first century AD, Roman conquests reached the point of diminishing returns; the stimulus came to an end. But borders still had to be protected. And Roman mobs, made up of displaced small landowners and out-of-work laborers, needed bread and circuses which drained the Treasury.

The first financial crisis of the imperial period came early. Caesar Augustus tried to solve it…with more stimulus. Neither paper money nor the printing press had yet been invented. So, Augustus increased the money supply in the only way he could; he ordered slaves in the silver mines in Spain and France to work around the clock! This extra money did not bring prosperity; it caused price inflation. In a period of about three decades, Rome’s consumer price index almost doubled. Then, when output from the mines could be increased no further, Augustus’s great nephew, Nero, found a new source of stimulus; he reduced the silver content of the coins. This source of stimulus proved ineffective, but enduring. By the time barbarians took over, the silver denarius contained almost no silver at all. Of course, Rome itself was played out too.

Another early and dramatic example of stimulus-in-action came in Spain in the 16th century. The conquistadors increased their supply of money in the time-honored fashion – by stealing it. Galleons brought treasure from the Americas; increasing the Spanish money supply substantially and fatally. The Spaniards had so much stimulus that they laid down their tools. Why should they work? They could buy things.

The discovery of a whole mountain of silver – Potosi – in the middle of the 16th century insured a supply of stimulus that would last for nearly a century. Results? Predictable. Inflation. In the “price revolution” from 1540 to 1640 the cost of living went up throughout Europe. In England, for which we have the most reliable data, prices went up 700%. And Spain, though it covered 40% of its state budget with this easy cash, still defaulted on its debts about once every 15-20 years, from 1557 for the next 10 decades. Spain, like Rome, welcomed stimulus; it never recovered from it.

Now we turn to the biggest misadventure in stimulus ever – the period after the United States ‘closed the gold window’ in 1971. In the 150 years before then, nations could stimulate their own economies with cash and credit, but only to a point. They could overspend; but they had to settle up in gold. After 1971, on the other hand, the sky was the limit – especially in the United States of America. The US could settle its bills in paper, which was then used by foreign central banks as monetary reserves. Since foreign banks were eager to add to their supplies of reserves, there was no effective limit on the amount of stimulus available. The Fed’s adjusted monetary base grew 900% since 1985, and more than doubled this year alone. Total US debt tripled – as percent of GDP.

As it did with Rome and Spain, more and more stimulus stimulated spending and speculation, but not real output. During the 2001-2007 period, for example, credit in the United States increased by $22 trillion. The nation’s GDP increased only by $4 trillion. For every extra dollar of output, Americans took on $5.50 of debt.

But now the bubble has blown up; the feds are on the case. What do they offer? More stimulus! Cometh a report this week that $23 trillion has already been put at risk in the various bailouts and credit guarantees. As for the US public debt, it is expected to increase until the country goes broke.