The dangers of unearned prosperity

What would you do if somebody left you alone in a dark room with a big pile of someone else's money?

American consumers, we discovered, would buy big-screen TVs and houses with subprime mortgages they could never hope to pay back, while banks from all over the world would buy bonds backed by those mortgages and end up as financial roadkill. More American banks than just Bear Stearns would have met a similar end if the American government, on behalf of its taxpayers, hadn't assumed the risk for some $2 trillion in dodgy securities.

The American government was hardly alone in propping up its financial institutions during the crisis of 2008. In journalist Michael Lewis's new book, Boomerang: Travels in the New Third World, he draws a deeply unsettling parallel: We avoided a global economic meltdown in 2008 only because governments in rich, developed nations bailed out their banks; if nations themselves start defaulting on their loans, who's going to bail them out?

Boomerang takes us on a tour of some of the most troubled economies in the developed world, starting with Iceland and ending up in California. Lewis' strength as a reporter, as he showed in Moneyball and The Big Short, is profiling people who represent something much larger than themselves.

In Boomerang he instead profiles whole countries, trying to distill cultural characteristics out of mini-profiles of individuals and thereby explain fiscal policy: the Icelandic fisherman who left his nets to become a financier; the Greek tax collector who railed against his lying, cheating, tax-evading countrymen; and the Irish economist roundly vilified for rightly predicting the end of Ireland's housing bubble.

The book reads like what it is-a collection of long articles first published in Vanity Fair-so it lacks the narrative flair of his previous books. He descends at times into stereotyping:

"The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is every man for himself. Into this system investors had poured hundreds of billions of dollars. And the credit boom had pushed the country over the edge, into total moral collapse."

When Lewis gets to California's public-sector woes in the last chapter he casts the problem as a "dysfunction" of modern government and the result of human evolutionary development. Like lizards, we evolved under conditions of scarcity to be driven to acquire more and more; in times of plenty we simply lack the ability to "self-regulate" and sacrifice short-term reward for long-term interests. Left alone in a dark room with a big pile of money, we spend it, as all lizards do unless forced to choose otherwise.

Biblically speaking, of course, this is nonsense, but Lewis tacks it on to the end of an otherwise highly entertaining book. And despite himself, his portraits throughout the book show humans as moral beings who should be held accountable for their actions.

"When you borrow a lot of money to create a false prosperity," he writes, "you import the future into the present. It isn't the actual future so much as some grotesque silicone version of it. Leverage buys you a glimpse of a prosperity you haven't really earned."

Americans-both taxpayers and their representatives-should keep this in mind as Congress tries (again) to deal with our budget crisis. Boomerang offers a very helpful perspective as we eye the grim spectacle of the Europeans attempting to salvage the euro and even the European Union itself.

Whether or not the world economy is teetering on the edge of chaos (Lewis himself is oddly optimistic), only One has resources enough to bail us out, and He may not be inclined to extend any more credit.

This book review was originally posted at WORLD Virginia.