Tuesday, September 22, 2009

The Time Lag Factor

A majority of people don’t really anticipate time lags. The results of Congressional legislation usually takes anywhere from 2 to 12 years to really take effect. Our leaders suggest that we have hit bottom and are rebounding out of the recession. I really have to wonder about that!

Legislators in Georgia a while back passed a law against unfair lending. The net result of the law, was to shut down bank lending in the state. The banks didn’t want the hassle. Congress passed a law for writing off farm machinery in a five year period. Hummer sales exploded for three years. Not quite farm equipment, but it qualified for the deduction.

A lot of times, the net result of a given action has very unexpected results. The UN taught people to farm in Africa 30 years ago and how to use fertilizer. It seemed like a real success story. People came to the area and the population exploded and things were fine for a while. The one thing overlooked was the need for firewood for cooking fires. 15 years later, there were no trees and the rain fall erosion turned the fertile fields into gullies and the population either starved to death or moved on.

When we examine cause and effect, there is a time lag between the two. Easy home loans created a speculative bubble. What we are looking at are the unintended consequences of economic forces that have a time lag built into them.

We do know that the Congress of the 1930’s figured that they had a chance to stop a lot of this stuff we are experiencing from ever happening again. Of course we were far wiser and knew what we were doing so, we changed the rules back to make the game better. After changing the rules in the early 1990's, things worked marvelously, everyone got rich. But then Bear Sterns had a small problem. The Nemesis from the 1930’s reared its head, with the same time lag.

Our government has initiated several programs to save the economy, from spending money that is nonexistent, to printing money to give to banks that has been lost through bad investments. I suggest that there is a time lag. What has been done will take several years to be “appreciated.” It’s a little like giving you underage girlfriend a girdle to hide her pregnancy. You haven’t altered the outcome----only made it more of a surprise.


Anonymous said...

So, after this recession, we still have to face our self-induced 'time lag' recession? How do we get out of this spiral then?

Jim in San Marcos said...

Hi Anon 6:53

You're making it too complex. We are where we are today because of what was done 8 to 12 years back.

We have to worry about the fixes being implemented now, 4 to 12 years down the road. Will they cause unforeseen problems? The answer has to be yes.

With the proper tweaking, this spiral could be turned into a death spiral---those end when you hit the ground. That could be classified as an unforeseen problem with very bad consequences.

Just remember, it took an awful lot of government planning to get to where we are today. It kind of makes you wonder if they ought to stop now.

Franco Bollo said...

Congress has never understood one basic law -

For every action, there is an equal and opposite reaction.
---Newton’s Third Law of Motion

If they did, there would be no such thing as Unintended Consequences associated with the laws they do enact.

Jim in San Marcos said...

Hi Frank

Welcome to blogging.

When we talk about physics, there are two types: Physics the science and Physics a laxative.

There is no sense in accusing Congress of misusing the laws of Physics---they would probably repeal everyone of them if given enough time (blond jokes use to be in, but dumber than a Congressman seems to be up and coming). You must admit though, if you read just one law, you'll experience the Ex-lax effect.

All kidding aside, you're right, and most of these Congressmen won't be in office when the results come rolling in.

Take care