THE ECONOMY & YOU — December 06, 2008
By JuJuan Buford
A cascade of alarming reports, exposes, articles, late night breaking news detailing the downward spiral of the U.S. economy has battered our collective psyches over this past year. The mercurial movements of the market continues to strip 401ks and bewilder self proclaimed financial psychics, and even the most optimistic among are aware that there’s more pain to come.
In response the mass media has myopically begun to focus on whether an Obama administration can somehow weave magic and right the ship, and which companies will or should be next to receive a multibillion dollar bailout. There are a plethora of opinions regarding the extent of the carnage, how Obama and the Congress will ultimately respond, and how long we can expect this period of financial anguish to continue. And why not? The boogey man so to speak, the subprime mortgage crisis, was identified a long time ago and anatomized ad nauseam in an effort to help us make sense of it all.
And it’s extremely disappointing.
Disappointing primarily because of the lack of honesty and courage exhibited by the media, those in the public sphere charged with the responsibility of providing insight, and pulling the financial levers that will hopefully ameliorate the catastrophe that is unfolding before us.
Yes, the subprime mortgage crisis precipitated by massive numbers of home foreclosures, coupled with the packaging of these intrinsically worthless loans as securities which inevitably became unhinged, ultimately upended or to be more accurate pushed the economy over the ledge. And yes, the lack of corporate and civil oversight coupled with unmitigated greed served to both facilitate and exacerbate the extent of the carnage. The general consensus regarding what occurred is not incorrect, but it does not answer the why?
Because the truth is inconvenient. It doesn’t win elections. It doesn’t drive ratings. It doesn’t feed into a psyche that has been coddled and cultivated for the purposes of unapologetic consumerism. Robert J. Samuelson’s “A Darker Future For Us” published in the November 10, 2008 edition of Newsweek hits the nail right on the head in one sense. Samuelson opines, “We Americans are progress junkies. We think that today should be better than yesterday and that tomorrow should be better than today. Compared with other peoples, we place more faith in opportunity and getting ahead.”
Indeed, an unyielding sense of ambition, hope, and determination for continual progress is one of the redeeming qualities of U.S. society. However, the issue lies in between the lines, in terms of how we define progress and getting ahead that is the problem. The problem being a culture that feeds into the idea of success defined by the square footage of our homes, the price tag associated with our cars, and ultimately our capacity to purchase the latest and greatest new trinket that hits the market. Quality of life? The wellbeing of my neighbors? What’s that? Who needs that?
But, what does it mean when ownership of a blackberry or iPhone transitions from a luxury to a need? In and of itself, such a transition isn’t so pernicious, right? Nevertheless, what happens when the desire, rather need to consume becomes more important than the growing balance of one’s savings account? What happens when the need to consume becomes more imperative than the application of disciplined, prudent investment strategies? What happens when it supercedes good old fashion commonsense; don’t spend more than you take in. Save, prepare for uncertainty.
What happens is a supermajority of U.S. households posted a negative savings rate nationwide during the inception of the 21rst century. In order to purchase the luxuries of life and still be able to afford the bare necessities like food, gas, shelter, educational expenses, building up a reserve, etc., most simply mortgaged their homes and employed their credit cards as supplemental income. It was as if crisis such as unemployment, disability, or an economic downturn were viewed as impossibilities.
What happens is an unapologetic dash to the top of the economic food chain no matter the cost. Consider that according to the Economic Policy Institute the average compensation (including benefits) of full-time workers holding non-managerial jobs is approximately $40,000 and CEO pay is more than 270 times higher today. In 1989, U.S. CEOs of large companies earned 71 times more than the average worker. To be certain the 21rst century CEO has been exceedingly more effective at ratifying higher pay within their ranks. Yet, have these higher paid CEOs been more effective at running profitable, solvent enterprises, or better, more passionate stewards of their employees’ futures?
Spread the wealth? What?
Still, the hunger for progress needed to be stoked and then fed, and the last two decades provided plenty of the fixings required. First there was the access to previously unimagineable levels of credit, facilitating the disincentive to save. Afterwards came relatively low levels of inflation facilitating plenty of incentive to spend. Then came unparalleled opportunities to amass considerable amounts of wealth. Then the cherry on top, being the government’s decision decades ago to begin printing money as if it really grew on trees. The aforementioned factors complimented by an attitude of who are you to tell me I can’t be Gorden Gekko more than contributed to the notion of progress U.S. society has come to adopt today.
Plus, a little promotion by the media and those responsible for managing the public trust and tax dollars didn’t help matters either. Remember after 911 our very own President George W. Bush proclaimed over and over again — parroted by pundits everywhere — to spend because it’s the patriotic thing to do and America depends on it. Now juxtapose the mass media’s compliance with President Bush’s call to amass greater debt for the good of the country, with the political drubbing President-Elect Barack Obama took for having the nerve to recommend that citizens inflate their tires, be more attentive to the maintenance of their vehicles, carpool, and adopt various other cost cutting measures to ameliorate some of the stress on our collective pocketbooks.
It was commonsense, but our need for progress was offended by it. Was it not our need for progress that led individuals — the well to do and the financially challenged alike — to purchase homes they couldn’t afford? Did it not contribute to an environment where compensation is no longer necessarily a reflection of one’s competence? Did it not lead to the inability of too many households to weather a month of unemployment, three, six, much less a year.
A strong argument can be made that as Americans, principles such as the willingness to sacrifice for the common good, the exercise of patience, and prudence in the face of accessibility are antithetical to the notion of progress shared by many today. Let’s be honest. We don’t really want to drive hybrids or electrical cars. We want to be able to accelerate from zero to sixty in less than six seconds, the environment be damned. We want the newest, sleekest blackberry.
Samuelson appropriately states, “Americans do not have a divine right to rapid economic growth.” Less than three years ago, he may have been labeled unpatriotic or overly cynical for uttering such a statement. Perhaps it’s time U.S. society reevaluates and deconstructs prevailing perspectives concerning progress during this period of woe. Become more excited about the incremental growth of savings account balances, rather than approved credit lines. Tune out the psychics and apply simple, time-tested principles of investing in the market and take advantage of an unprecedented opportunity (one many of us may never experience again in our lifetimes) that today’s market conditions offer. And how about we force CEOs to earn their checks via incentive pay?
Also, postpone the replacement of that new Bluetooth you lost yesterday until your next paycheck arrives, and put the credit card away.
Originally published at https://www.catchjsbuford.com.