The Road Ahead

The Friday Fix-The Road Ahead
Friday, November 14 2008

How many economists does it take to change a light bulb? I have no idea, but you can bet that they’ll screw it up somehow because while all of them will have advanced degrees from Harvard and M.I.T. in advanced theory of bulb changing, the fact is that none of them have probably actually changed one in years. Same holds true as far as the economy, how many of these so-called experts live in the real world and adhere to the principles of the real economy. How many of them have to sit around the kitchen table and figure out how to pay for the kids activities, the leaky faucet, the homeowners association fees that are coming due, the regular bills, and oh yeah, gas and groceries too?

Economists are to the real economy what the cable news and Sunday morning talking heads are to the real world of politics, that is to say they are mostly blowhards long on theory and extremely short on actual understanding of what it is that impacts ordinary average people. So what we need is an ordinary average guy or gal to break things down and give the perspective of the common man and woman. As luck would have it, I’m still waiting for the call from Brokaw to appear on the Meet the Press, so you get me on my little blog giving you what a one-time Republican candidate would call some straight talk. And if you want I’ll even call you my friends.

So my friends, here’s the lowdown. We are pretty screwed! I’m not sure how to sugar coat it, and quite frankly the problem is that we have been getting plenty of sugar coating, and the empty calories have left us feeling bloated but unsatisfied. If you want to know how the economy is doing, you need look no further than Wal-Mart. If our retail behemoth is just humming along with regular profits, the economy is probably doing pretty well. If their profits are up, that is a good sign that we are in recession, as more people give up the weekly trip to Whole Foods Market and Trader Joe’s for the always low priced staples that Wal-Mart delivers week after week without fail. But when even Wal-Mart is forecasting lowered profit expectations, which they just announced yesterday by the way, you know we are in for some serious stuff.

Why is Wal-Mart such a good indicator of the overall economy? Well for starters they employ more people than any entity other than the federal government, and we all know what their balance sheets are looking like these days. But mainly because when times get tough people tighten the old belt and suck it up and head to their local Wal-Mart for their groceries, household supplies, DVD’s, and about anything else you can think of.

Why are times so tough? The answer is actually quite simple, and it falls under the category of chickens coming home to roost. A few decades ago, corporate America took its cue from Ronald Reagan and decided to try a little trickle-down experiment of its own. CEO’s who used to make around 60 times what the rank and file worker brought home decided that they could hook themselves up with mega bonuses and generous stock option plans, and any crumbs left over would trickle down to the workers, who would be grateful just to have a job. And how has it worked out?

Quite well for the fat cats, as they now make nearly 300 times what the guy or gal in the cubicle makes, and most of us are just happy that in these tough economic times that we at least have jobs. Never mind that we were sold a bill of goods by our employers and our government, that we were promised that if we showed up on time and diligently attended to our duties, we would be rewarded with wages that at least kept up with inflation, health care that would actually cover expenses when we needed to use it, and a retirement plan that would still be solvent when we were ready to cash in on it.

Turns out the joke is on us, because the promises made were not the promises kept. So what did we middle class peasants do in order to continue to live the modest lifestyle we had come to expect? We borrowed, again taking the cue from another Republican administration, this time the horrendously inept Bush crew. We borrowed against the equity in our homes, and spent based on the value of our stock portfolios. We took out credit cards which came in the mail fast and furious, and racked up some pretty sizeable debt along the way. But it was fine because the markets would keep going up and our yearly raises would keep up with inflation. Until they didn’t, and the bottom dropped out.

I’ve heard economists talk about how the middle class went out on a spending spree, and to an extent this is true. We bought houses for more than we could really afford and big monster vehicles that clogged our roadways and polluted our air and left us with huge car payments and gas card bills. But mainly we borrowed to keep up with the cost of life, in order to cover all the unexpected expenses that crop up after the gas and groceries have been covered. And now that the housing and stock market bubbles have burst, and the credit card offers have dried up, we are tapped out. So we suck it up and go to Wal-Mart, order pizza instead of going out for an expensive meal, and we are starting to trade in our gas guzzlers for more sensible vehicles.

Whether this current downturn will turn out to be little more than a bump in the road, or a more serious detour is anyone’s guess, which is all any of us, the so-called experts included, are doing when we try to predict the future. I believe that this may end up being a more fundamental shift in our economy and in the way we produce, distribute, and consume goods and services.

My hope is that out of all of this, we end up with an economy and a society that saves more than we borrow, that produces more and consumes less, and that is more equitable and less excessive. We need to get our financial house in order. As individuals and collectively, we need get financially fit, and that usually entails some short-term pain but if done right the result is real and noticeable long-term gain.