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.

Comments (22)

  • This is so right on, and most people are not going to get it… The Wise People will all get together and try to rebuild the economy just like it was, even thought the paradigm had an essential flaw in it. This reshuffling we’re about to go into/in the midst of would be a great opportunity to reexamine how we view the economy in a macro way, but I don’t know that folks will do it. Constant, unending growth, foever upwards was never going to be possible. Good post!

  • I’m both recommending and 5-starring this post, for whatever good that will do in this shallow community called xanga where everyone seems obsessed with frivolities instead of substance.  Thanks to the brainwashing that has been going on in this country since the ’50′s.  Some of us either were immune, or have since woken up to see this, and many other truths.


  • Great post………….wow……..hope you day is great too……hugs.

  • My dad always used to say, “I’ve never seen a Brinks truck following a hearse.”  Dad would have liked Geoffrey.

  • I don’t really feel like there’s anything much I can do about the economy at this point myself, except clean up my own act.  I’ve been on the path of doing that for quite a number of months now.  There have been attempts in the past, too, but they didn’t last more than a few months.  I feel a lot better about this time around.  The determination is habit now… and I know that even if I suffer a set back, there are options yet.  Maybe not options enough to save my house if I become one of the masses laid off and can’t find a new job soon enough, but even then I feel like that “cleaning out” will just get the same job done via a different means.  Though, I prefer to do it the right, responsible way – if the universe will continue in supporting me with that.  In 3 yrs I will be CC debt-free and on my way to building my 8 mo security nest egg and living a personal cash economy (besides my house – which will hopefully be a net assest again by then – maybe it is now, but probably only just barely).  I feel people taking personal responsibility for all their debt is the smart way for America to recover – and that will take much time (though surprisingly less time than one might imagine if one applies oneself duly).

  • everything is either in growth or decay…………….there is no middle ground. Granted, the decay can take a really long time and give the illusion of stability; however, stability is a myth.

    very good post

  • Exactly.

    I’ve lived without credit cards for the past 15 years. I drive a good car that’s 16 years old and will last me at least another 10. I paid cash for it and have no debt except my mortgage, the payment for which goes down every year. My house, appraised at a good $50,000 more than I paid for it, has not lost its value. It will be paid off completely in 5 years. Yes, everything is more expensive right now, but you know what? I don’t feel it much. Because I’m used to paying cash, living frugally, not being in debt. If I can’t pay cash for it, I don’t buy it. If I really need it, I save for it. Our sense of entitlement in this culture is ridiculous.

  • It seems everything in my house revolves around money and i HATE it!  All it does is cause stress. 

    I’ve been thinking about my relationship to money lately.  Money makes me nervous and I do have a ‘fear of lack’ around it.  I do feel I can’t break free without it, yet I envy those few people who live happy lives frugally…. like Cath in the forest.  I don’t have an answer for me… yet… .but it IS something I have to deal with very soon. 

     No eggs thrown at you…. I’m glad you wrote about this!  *hugs* Peter… Colleen

  • I think you make a great point. Even though a good portion of my mental review revolves around financial woes. :) If we as a society did not worry about keeping up with the Jones’ more people would have bought less “air”. How were we convinced we needed this air to begin with?

  • I’ve always been interested in your posts.  This is one of my favorites.  I’ve spouted my disfavor about the more, more, more for years.  There is a generation of parents out there that thinks their children need everything, no matter the cost.  This plunge may do the job of saving that generation of children.  Now, they’ll see the world from a different view, and maybe put their priorities on the things that really count … the actual necessities.

  • well said!  Hope you have been well. 

  • yeah.  wif to has a money?

    (begins to sing it …)

  • Oddly enough, I try to live pretty frugally too, but I find some things even if you live frugally, you have to buy the “air”. I use a particular brand of lip care that has over the last two years gotten “popular” and its price is about 3x what it used to be. which makes it a whopping $6 instead of $2, but the idea is there. Someone finds something that’s off the beaten path, makes it popular, and then they’re selling you air and this off-beat item is now “posh”…… its sort of a vicious catch 22 circle of doom. a few companies won’t follow the “sell sell sell” thing, but others, sadly, say “Hey, we can make an extra buck or three….”….

    I’m moving into a home, with a few friends, communal type living, to help with “making ends meet” in these times. Hopefully, we’ll see it through without having too much of our own humanity stripped.

  • I’m living under what is considered the “poverty line”.
    Which baffles me, since I’m in a 2 bedroom home up a hill on an island, we’re all well fed, clothed, and the kids have toys, gadgets and, well, ME.

    They aren’t in daycare all day so I can work my ass off so i can have a snazzy car to drive TO work in, or designer blouses to wear TO work.

    I consider my job to be raising my kids. Spending time with them. And living.

    Luckily, I love my job!

    anyhow, if the zombie apocolypse came about, we’d  all revert back to considering a successfull day one where we aren’t eaten….and managed to get water, food, and sleep. Maybe even rig up a hammock. Or devise a new way to keep predators out of the livingroom.

    It’s all distraction, really. And distraction is fun for playing, but when it gets to be life isnt’ fun anymore, I dunno.

    not my cuppa.

  • We are so much better off than three quaters of the world we should be very grateful for what we have. Judi

  • Hi Peter,

    Just wondering if you’ve read a book called Your Money or Your Life. It is right there on the same wavelength with what you said. There’s a chart, near the beginning of the book. It shows people of various incomes from $500 a month to $6000 a month. There is also a ‘happiness range,’ from 1 to I think 5, with the number 3 being, “I’m coping.” The average happiness number, regardless of income, was 2.6. It made no difference how much money anyone made, once they had enough to meet their basic needs plus a little extra. The point of the book, in a nutshell, is that people need to figure out what is ‘enough,’ and to awaken from the mentality that ‘more is better.’

  • Currently I a selling the “big house” which is next to and across the street from four people I LOATHE the most….because I had enough sense in this economy to buy a “starter house” of under $200,000 that has all that we NEED and doesn’t break the bank. I told my stock broker if it all goes down the tube, at least I have this free and clear. He agreed. And it won’t blow away in a good wind, either. BTW, do you have any single brothers? I am so happy for you and Sidney.

  • I think a simplier life style is what is needed. I have been  trying to put that in effect for some time in my life with some success and some faliure. What will come of all of this who knows. I guess the worse that could happen is to have to lose my house. My job has already been downsized. Then what I don’t know just praying about it. Maybe we are into a new era like the information era, which was way too much too. Judi

  • How are you today  Judi

  • Like other commenters, I wonder how you are.

    I can certainly see why you might want to leave this post up, to be found by infrequent visitors such as myself.  I’m going through my sub list today, cleaning out some subs.  When I saw the date, you became a candidate.  When I read the post, your candidacy (for deletion) ended.

    I had an economics prof in college — this was in 1961, or thereabouts — who looked at the macropicture and asked the class, “How much can you CONSUME?”  Meaning, he was looking about this far into the future and was worried even then.

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