Many people have been struck if not shocked by how quickly things seem to have changed in the economy. But, appearances to the contrary, things don’t really change all that quickly. Every change has causes – causes that may seem indiscernible except in hindsight. And that’s certainly true of our current economic situation. We now know that under the surface important dynamics, which caused some of the changes, had been operating for years.

As I’ve always told my children, few things happen by accident. Every effect has its causes, and so if you pay attention to the likely consequences of your actions the effects will take care of themselves.

It’s like springtime. As winter passes, it looks as if nothing in the garden will grow. Then all of a sudden everything changes. Sprouts shoot upward through the surface of the ground, buds burst into flower and leaves suddenly unfurl. If you happen to turn your back for a couple of weeks, everything appears suddenly to change. Every gardener knows that under the surface and beyond the discernment of our senses, it’s the practices of the past that have come to fruition. The bulbs planted years ago, the seeds sown in past seasons, the bushes or trees planted, all of them fed and mulched, cause roots to extend and shoots to spring forth year to year. It’s not accidental or sudden at all, but gradual and resulting from specific causes. It’s important to pay attention to the causes in order to learn from experience – to improve the results in later years.

So what can we learn from the economic difficulties we’re experiencing? One issue comes to mind: the high rate of mortgage foreclosures and downward pressure on housing prices. This seemingly sudden change has had gradual causes. We can learn important lessons from those causes.

Housing has been a huge industry in our country – connected with all sorts of other industries, including banking, mortgage lending, insurance, contracting and development, real estate, law, the trades and suppliers of building materials, just to name a few. When the industry started to flatten and interest rates became lower, innovations were expanded within the housing industry. Whether you call it “sub-prime lending” practices or some other name, it was the policy of lending to buyers who otherwise wouldn’t qualify for a house purchase at a lower rate so as to enable them to buy, but with the caveat that later there would be a balloon increase in the initial rate. Lenders called it a way to enable more people to own their own homes. In effect it set up people who wouldn’t be able to afford an increased rate to pay. It was a short-term fix to help the housing industry continue to expand, but on a foundation that would eventually crack under the load. Call me suspicious, but I do think that greed was involved – greed, shortsightedness and lack of self-control.

Speaking of those three factors – greed, shortsightedness and lack of self-control – simultaneously, some consumers were living beyond their means and made up the difference by refinancing their homes. They spent more than they made and drew cash from theoretical increases in home equity to make up the difference, and with time became house poor -- owing more than their homes were actually worth.

Obviously the combination of those two factors has caused a significant increase in the number of houses added to the market. The higher supply of houses for sale coupled with tightened lending practices has caused the precipitous decrease in home values. Much of this has been caused by people living or buying beyond their means, institutions colluding with that in order to keep business up in the short term, and lack of government supervision.

It has been vogue during the past ten years or so to believe that government should never interfere with business. We’re told to trust the market and to let business do whatever seems best for profits. What’s good for business is good for the USA. Alas, that’s simply false. The three last and worst crises in the U.S. economy were consequences of inadequate government supervision of business policies and practices – the savings and loan crisis, the “dot/com” debacle, and this “sub-prime” lending crisis. Government should exercise prudent active oversight of industry practices in order to counterbalance excesses in business fueled by greed or shortsightedness. Some seem to think that the only human enterprise immune to the effects of sin is economics, and that simply isn’t true. Of course government is yet another human institution quite susceptible to the influences of sin. Governments can all too often try to exercise too much control over business and ruin its positive potentials, as perhaps could be said of the state of the Rhode Island economy. Too many regulations and too much oversight can stifle business just as readily as the lack of oversight can lead to excesses in business that can cripple an economy.

So what can we learn from this most current economic difficulty, this time in the form of the housing crisis? Here are a few thoughts on the matter:

• God is the only one who deserves our ultimate trust. Sooner or later, every other human institution will disappoint us. Governments, economics, business sectors and corporations, no matter how big or stable they may seem, will let us down.
• As citizens in a democracy, it is our responsibility through the channels left to us to demand the healthy balance of a creative tension between business and government – to hold business accountable without controlling it to such an extent that creativity and vitality are discouraged. It’s a matter of justice, and we’ll always tend to go to one extreme or another in trying to find balance. We simply need to make the necessary corrections as we go along.
• We do well to exercise control over our own greedy impulses – whether in our personal lives or in the workplace. Eventually greed always traps its own hunter.
• It’s important to be realistic about our means and to live within them. As you may already know, I believe in trying to live on 70-80 % of what you make – 10% for the Lord and to help the wider community, 10% for the kids’ education, and 10% for savings or retirement (for the proverbial rainy day). It’s a target to shoot for. In any case, enough of this living beyond our means; it’s shortsighted.
• Speaking of shortsighted, we should live the way we drive our cars (when we’re on our best behavior). Pay attention to what’s right in front of you, but keep your eyes up ahead to see what’s coming down the road, and make sure you’re headed in the right direction all the time.
• Control your appetites and don’t let them get out of hand. I know we’ve been brainwashed by advertisers to think that we should be able to spend whatever we have (and more) to get whatever we want when we want it – to “fulfill” us – because, hey, we deserve it. That’s sales manipulation, not the truth.
• Finally, pray for those who have lost or are in jeopardy of losing their homes. They do deserve our prayers, and it’s our responsibility to support those in need.

Enough for now…

Affectionately in Christ,

Phil +