Summary: A powerful metaphor, widely used, about this recession — the worst since the 1930’s — providing important insights.
Excerpt from “Financial Heroin”, Don Coxe, Coxe Advisors, 16 December 2009:
… my father was a doctor in the Canadian Army in WWII, and served in the Italian campaign. He became greatly respected for his anaesthesia and pain management under battlefield surgery and rehabilitation conditions. (He was cited after war’s end for perhaps having performed more anaesthetics under such conditions than any other Canadian doctor.)
In discussing his experiences, he told me that he swiftly learned that the best — and frequently the only — reliable drug for the critically wounded was heroin. Soldiers who writhed in agony under other medications almost always responded to heroin. The problem wasn’t deciding whether to administer it: if morphine didn’t work fast, you didn’t waste time, you injected heroin.
The problem for the doctor came when the patient had begun to recover from surgery, and was receiving heroin. How quickly could the dosage be reduced and when would it be terminated? Although few soldiers were freed of heroin without experiencing pain and distress, it was necessary to take the drug away as rapidly as possible. Otherwise they would become addicts and their lives would be ruined — for soldiering and everything else.
… Zero interest rates are Financial Heroin.
This goes to the vital points, mostly misunderstood, about the massive fiscal and monetary stimulus governments have applied in response to this global recession. Government stimulus has several characteristics similar to heroin.
- It mitigates the downturn, minimizing the suffering,
- but it does nothing to fix the underlying problems,
- and creates imbalances which must be removed when the economy recovers.
About government stimulus programs
(1) The miraculous curative properties commonly ascribed to government stimulus results from the brief duration of most recessions. They last a year or so, with government programs enacted in the middle — after the worst, after which signs of recovery soon appear. Sometimes the stimulus programs get enacted as the recession ends — or even during the early stages of the recovery.
(2) When the private sector has underlying problems so severe to prevent normal recovery — as in the Great Depression, Japan since 1989 — then the stimulus programs are seen in their true light — useful palliatives, not magic bullets.
(3) A recession provides a unique opportunity to take important public policy measures, such as tax changes, regulatory reforms, and construction of valuable infrastructure projects. The US has so far wasted this opportunity. Let’s hope the recession does not continue into 2010, and give us another opportunity for such things.
For more information from the FM site
Reference pages about other topics appear on the right side menu bar, including About the FM website page.
- about the Financial crisis – what’s happening? how will this end? – esp section 8, about solutions
- some Good News about America!
Some posts on the FM website about solutions to the financial crisis:
- A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
- How should we respond to the crisis?, 24 September 2008
- A solution to our financial crisis, 25 September 2008
- The last opportunity for effective action before disaster strikes, 3 October 2008 — How to stabilize the financial system.
- Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
- Dr. Bush, stabilize the economy – stat!, 7 October 2008
- The new President will need new solutions for the economic crisis, 9 October 2008
- New recommendations to solve our financial crisis (and I admit that I was wrong), 23 October 2008
- A look ahead to the end of this financial crisis, 30 October 2008
- Everything you need to know about government stimulus programs (read this – it’s about your money), 30 January 2009
- Explaining the government’s response to the financial crisis, 3 December 2009
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