December 14, 2008

• The Economy… stupid…

  I suppose one would have to be living under a rock to be unaware that “something” is going on with the global economy. There’s endless hand wringing and scores of talking heads who offer “opinions” about what “ails” us all. Generally, I stay away from these discussions… for any number of reasons, including the large one that I tend to offer opinions (that later turn out unnervingly prophetic) nobody wants to hear. A sort of “Emperor’s New Clothes” thing.
  
  Don’t get me wrong, it sucks to see the value of your 401-K be cut in half in a matter of months. And it sucks to have your house foreclosed on. And it sucks to be laid off from your job.
  
  The talking heads spew words of “wisdom,” 99% of which revolves around the issue of “how we get our economy back to robust growth.” Normally, I’d leave this particular flaming turd alone, but I was listening to a group of so-called “experts” on CNBC, going on about how me MUST get the economy back to solid growth, and we definitely don’t want to “become like Europe.”
  
  It reminded me of some… wow… 25 years ago, where I found myself arguing with one of my college marketing professors over the long-term viability of the US economy. The “argument” consisted of me saying that the US “growth paradigm economic model” would eventually have to collapse because it was based too much on “selling air.” The opposing side’s “case” consisted of him calling me ignorant.
  
  It’s 25 years later, and I’m listening to CNBC’s Larry Kudlow talk about the importance of returning to growth, and I’m reminded of this 25-year old conversation. And I just want to SHAKE these people and ask them how the frak they think we got into this mess, in the first place. The very thing you’re proposing as a “cure” is what caused the mess in the first place.
  
  Think about what “growth” means, and carry it out to its logical conclusion. Not what it will look like in 2013, or 20 years from now… but what will it look like, 200 years from now? Prosperity? I don’t think so. Think about it. If you “have to” make 5% more salary next year, that also has to “come from somewhere.” That “somewhere” is the production of goods and services. But in order for the company that employs you to increase your salary by 5%, they also have to make and sell an incremental number of goods and services to afford that 5% increase… say, 5% more goods and services. But actually… that’s not enough. Because the company needs to expand it’s capacity by 5%, and for that purpose it has INVESTORS, also known as shareholders, or it goes to the BANK and borrows money… because, God forbid we should only expand when we have the actual cash it costs to do so. The investors expect to make more money on their investment every year (growth of stock price) or they will invest elsewhere. So the company not only has to pay YOU more, it also has to make sure the stock price keeps going up, to give the investors an increased value of their investment… and how does it DO that? Well, profits have to increase.
  
  We don’t much think about the “effect” of this, on a year to year basis. Perhaps not even on a decade-to-decade basis. But when we start counting in centuries, something dramatic happens. Guess what? The metaphorical “you” of 2008, who lives in a house and drives a car… by 2208 will need to own FIVE cars (just for you, the ONE peson) in order to support the growth-based economic system you subscribe to. You also have to own 200 pairs of sneakers, and eat nine meals a day. Because “everything” has to grow at some prescribed percentage a year.
  
  The word “Ponzi Scheme” has been in the news, recently. It’s an old term I know well, from my days long gone of writing about network marketing. The notion of “economic growth”– at its core– is really little more than a Ponzi Scheme. At some point it runs out of gas, because the need for “real” goods is finite, and the system starts to become increasingly dependent on “selling air.” What is “air?” Well, I’m not talking about the stuff we breathe, I’m talking about “artificial” value that doesn’t actually exist. Most recently, we’ve seen it in the real estate market. But it’s elsewhere, too. I can guarantee you that your Air Jordans do not cost anywhere near $120 to make… even after several people get a “fair profit.” You’re getting a pair of sneakers… AND a large bag of AIR.
  
  Yeah, yeah, I know… but if you can’t play with yourself, who CAN you play with?
  
  Not so long ago, I was looking at property… new construction… just for shits and grins, and I made a rough assessment of the cost of the land, plus the cost of the building materials, plus the cost of labor, plus the cost of a fair profit to the builder/contractor… and then compared it to the actual sales price. The former came to about $110/square foot. And yet… the houses in this development were being offered for $270/square foot, on average… the difference simply being “air,” or more aptly, what an irrationally exuberant market was able to bear. However, that $160/square foot difference had no basis in anything real or concrete… as a great many homeowners and mortgage lenders are now discovering, in unison.
  
  I look at all this, and it strikes me that very little of it is about “housing,” or “mortgages,” or “the economy.” It’s about our essential values being out of kilter. I realize this is the “land of opportunity,” but our perception of what “success” means, and what we “need” to be successful… is broken. And that’s why we’re now in this jam.
  
  40 pairs of designer shoes. 5000-square foot houses. $80,000 cars. Rolex watches. What exactly do you HAVE, of you have those? And why, when you do have those, the compulsion to up the shoe collection to 50 pairs, and “move up” to a 6000-square foot house? Why do people who start a company, and get to make a million dollars a year feel “driven” to get the company to where it makes two, five, ten million a year? Where is the “need” for that?
  
  Conversely, why are we so afraid of living lives in which we are “gainfully employed” in a manner where we make a living– we have a place to live, food, heat, and so forth. Why always bigger, bigger, bigger, more, more, more? I don’t get it.
  
  Back when I was a teenager, I lived in an area of very very wealthy retired people. I used to play golf, on occasion, with an elderly Englishman named Geoffrey. Geoffrey said to me, one day… in the course of “giving advice” to a young fledgling:
  
  “Shrouds have no pockets.”
  
  I sincerely doubt that “fixing the economy” is going to be the answer to anything. We have to fix ourselves, first. We have to fix, within ourselves, whatever that empty space is that we’ve somehow become convinced we can “fill” by shoving stuff into it. We’ve grown obsessed with life-style, but seem to have forgotten life, itself.
  
  I know there are people who’ll be offended by this, for any number of reasons. Could be you’re living in poverty and wish you just had a little more. Could be you’re living well, and think it’s “un-American” of me to suggest you might be happy with less. I’ve just been noticing, of late, how far too much of life focuses around money… have it, don’t have it, want it, need it… all is about money. Maybe it’s just the Holidaze, getting to me… this time of the year when so many start to “measure” their sense of self in terms of “what” and “how much” they have been given.

  • 11:53 pm
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