America Reaps What it Sows

July 29, 2008
Public Topic #1 has shifted dramatically in the last year or so. It used to be all about Iraq; now it's all about the economy. Easy enough to see why: the surge in Iraq is actually working, as even Bush's harshest critics will admit. At the same time, a number of nasty developments have the economy reeling.

Skyrocketing oil prices drain money away from consumer and business spending alike. Used in the production and transportation of virtually all goods and services, higher fuel costs have hit foods costs especially hard, accounting for an average 40% increase there, according to one source. Droughts, floods, and other weather problems have further raised food prices, not to mention the impact of taking croplands out of food production to produce biofuels. Then there's the housing mess, the sub-prime mortgage crisis, failing banks, a declining U.S. dollar, and the resultant bear market on Wall Street. Prices up everywhere, jobs in jeopardy, homes being lost, banks shutting down - it's hard to think about much else these days!

Former Congressman and McCain adviser Phil Gramm got in a lot of trouble awhile back for saying that Americans were a bunch of whiners, complaining about economic problems that were really not that bad. Nothing more than a "mental recession". Wow! What kind of politician says that these economic problems are mostly imaginary? What better way to alienate the majority of Americans?

So I won't say that. What I WILL say, however, is almost as incendiary: A majority - though not all - Americans deserve much of the economic grief they're now experiencing. At the very least, they (we) are to blame for how much these economic issues are affecting their (our) lives. A lot of the bad economic stuff that's happening fits into the category of paybacks, or reaping what you sow. Here's why...

For various reasons, Americans have come to feel that they always need to have the most, the best. We want the biggest, most wasteful car that we can afford. We're not interested in a nice 3-bedroom house; it's gotta be HUGE! A 26" TV for $300 - are you kidding? We'd be embarassed to own anything less than a $1500 48" LCD. And are you joking about cooking over coals on an $80 Weber? All my friends have $500 gas "grilling centers". Americans eat out often, even though the food usually isn't very healthy and costs many times what home cooking does. They fall for media claims of "bargain" wines that cost "only" $15, boots on sale for "only" $250, vacation hotels for a low, low $350 a night. New homes, from the mid-$800s! Entrees starting at only $27.95 (salads extra)! Tickets for the big game - $200 and up!

The reason for all this is that over the last few decades Americans have become incredibly materialistic, conspicuously wasteful, and have bought into the ridiculous notion that we're all super special and we all deserve the very best. Oh, and we're no longer responsible for what happens to us; if something goes wrong, it's somebody else's fault and/or somebody else will rescue us from our dumb choices. We've become stupid.

I'm thinking about one of my nieces. She's about 35 now. Drives a Cadillac Escalade, one of the most wasteful vehicles a person could buy. She never goes off-road, and rarely has anyone else in the vehicle with her. Why does she need a (luxury) all-wheel drive SUV that seats 8 adults and costs over $60,000? "I like the way it looks, all my friends drive big SUVs, and Cadillac is the best there is" - that's what she once told me. (Silly Uncle Jon; he just doesn't understand!) She had been living in a nice enough house, with her husband and 2 kids. About 1800 square feet, which incidentally is about 500 square feet larger than the house her mom grew up in (along with 7 brothers and sisters) and about double the size of the average house 50 years ago. But everybody else was moving up, so she bought a newer, bigger house a couple of years ago - 2 stories, about 3000 square feet, and affordable thanks to a low adjustable-rate mortgage! Now why do 2 adults and 2 kids need a 3000 square foot house? Answer: they don't. It's all for show and ego.

I remember wondering: "How in the world do they make those payments on that house, her Escalade, and his truck, along with all the gas they suck? What are they gonna do when those low teaser payments on that huge new house jump up in a couple of years?" And how about the bling they both love wearing, and the latest fashions, and the going out to eat almost every night? They make a lot less than I do; how do they pay for all that? Well of course, they do it with credit. In hock up to their eyeballs. THAT'S the American way!

Silly Uncle Jon; he just doesn't understand. See, the Streblers eat almost every meal at home, which is a 1500 square foot place, drive recent model Toyotas that are paid for, buy good wines that are NEVER over $10 a bottle, have ZERO debt (other than the house, which will be free and clear in 7 more years), big old retirement accounts that we've been socking money away into over the years, and healthy savings accounts in case of a rainy day. We eat VERY well, have a marvelous time traveling all over world, and basically want for nothing. And we're perfectly happy, almost as if we had good sense! Well, maybe it's not a fair comparison. I mean, we're in our fifties and are supposed be in better shape financially than someone in their 30s. But even in our thirties, our living style was modest but very comfortable, our debts negligible, we always had a substantial rainy day account, etc.

But back to my niece (let's call her "Kathy") today. Gas prices have doubled since Kathy bought her Escalade, and her 70 mile daily commute to work and back is killing her budget. Payments on her adjustable-rate mortgage jumped from $2000/month to $3700/month earlier this year, which she can't afford. Kathy tried to sell her home, but the housing market topped out last year and her home is worth 25% less today than when she bought it four years ago. So she lost her home to foreclosure, and is now living in a 950 sq. foot condo. With her husband, her 2 kids, and - oh yeah - her cousin who recently lost his home too. Kathy's trying to sell the Escalade, but nobody's buying 13 MPG luxury SUVs these days. She's had to drop the premium cable channels, switch to a basic phone plan, start cooking at home, and she still has no idea what to do about the $21,000 debt she has from her 4 credit cards.

You and I both know it's not just Kathy. We all have neighbors, relatives, co-workers that are in the same boat as Kathy. Maybe their "boat" is a little smaller than Kathy's or maybe they're stuck in a big old yacht of a boat, but the point is they lived way beyond their means, they didn't consider the possibility of bad times, and they're in deep doo-doo now. We're supposed to feel sorry for them. But even those of us who haven't lost our homes or grossly overspent for years, even we are being hurt by $4 gas prices, soaring food costs, a declining stock market, and a dysfunctional mortgage industry. The government's to blame for what's happened - especially President Bush. And the oil companies. And the Arabs. Wall Street's to blame. And the damn tree-huggers. And..... well, this is where you write in whoever else you think is to blame.

But I beg to differ with you. Stuff happens all the time in the real world. That stuff is just as likely to be bad as good, it's most often NOT caused by any one group or some conspiracy, it's often pretty obvious to see in advance for anybody who keeps their eyes open, and it's our job not to be caught off guard too much by it. That's why we've been taught all along to "not put all your eggs in one basket", to "not spend more than you make", to - as a "buyer - beware", to "save for a rainy day", and that "there's no such thing as a free lunch". We all learned these things; but too many of us have chosen to forget them. So many Americans allowed themselves to become stupid and do the exact opposite of these little sayings.

Who's fault is it really that people earning $60,000 a year bought $700,000 houses with mortgage payments that could double in 3 years? Do you really believe that these buyers didn't understand this, that they weren't acting out of greed, or stupidity, or both? Why do we assume that anyone without an MBA is unable to comprehend the risk, that they were "victimized" by predatory lenders? Sure, lenders were complicit. But still, who's job is it to look out for us, if not ours? What - people can use the Internet for shopping and endlessly trolling MySpace, but can't take a little time to research it before making the largest investment of their lives? Give me a break....

Housing prices (in San Diego, at least) dropped 15% or more in the early-1960s, the mid-1970s, the early 1980s, and the early 1990s. Each time, this resulted in hundreds or thousands of foreclosures for owners with shaky finances. After this last dip, prices rose for 13 years (thirteen years!) without a pause, while tripling in value (tripling!), fueled by ridiculous and unsustainable mortgages. Anybody watching real estate knew that the housing market was a train wreck just waiting to happen. So I'm going out on a limb and saying that perhaps 8 out of 10 people in trouble with their homes got what they deserved for their greed, laziness, and stupidity. The others? Legitimate victims of job layoffs, nasty divorces, illness and other factors over which they had less - but usually some - control. Maybe two out of ten - they deserve at least some sympathy and help, but that's all.

Gas prices. Here's where everybody complains, but yet we're all largely to blame. Look - we got big wake up calls in the 1970s: we were ruining the environment and were vulnerable to sharply higher fuel prices. The logical reaction to these realities would be to use less fuel. Live close to where you work; drive a car that gets good mileage; drive slower; minimize needless driving, seriously expand mass transit, etc. Good for the environment, good for our pocketbooks, good for the nation's security. But of course we mostly did the opposite, at least over the last 20 years or so. More and more housing built farther and farther from town. Bigger (and more expensive) cars and SUVs getting low gas mileage. Speed limits raised back up to 65 or 70, which hardly satisfied the American greed for speed. Average highway speeds are 70-75 MPH, with plenty of folks going 80 or 85. New highways everywhere, encouraging people to keep on truckin'. And then there's the new American laziness that insists that you never walk when you can drive, and only losers ride bikes.

We end up with people crying on television about how gas prices are killing them, as they fill up their big SUV. Anybody see the irony here? Then there's this sad reality: I've been driving 60 MPH on the freeways for the last few months, since doing so will save me about 20% on gas costs while only adding a few minutes to my daily commute. Don't you think at least a few other people would have figured this out too? You'd be wrong. The other day I was cruising along, going 60 in the slow lane, on a quiet Sunday mid-morning. After a while, I noticed that EVERYBODY was passing me, and most of them seemed to be going a lot faster - 70 at least. So I started counting, just out of curiosity. 87 cars passed me before I passed one car! This is how is every day. Going 60, even in the slow lane, gets you nasty looks and being cut off by irate drivers. You can just tell that they're truly baffled: "Why aren't you driving as fast as you can???". Almost nobody is driving slower, even as they whine about high gas costs! Americans have let themselves become stupid.

I don't want to hear about how the stock market is ruining people, either. Stocks have averaged about 10% total return annually for the last century. That's more than triple what bank accounts have paid over the same period. Anyone familiar with how the universe operates knows that means stocks are a lot riskier than bank accounts. Meaning they go up AND down. Add to that the historic bull market from 1982 to 2007, when the S&P 500 rose more than 1300% (or about 15% average yearly, when you include dividends received). Knowing these things, a prudent individual might think: "whoa, that stock market sure seems to be getting ahead of itself. I wonder if it's time for some bad years, to balance out all those above-normal years?" But no, that would require a healthy skepticism, which would conflict with the idea that getting rich should be quick and easy. So Americans plunked hundreds of billions into their 401(k) plans and other investment accounts about which they knew next to nothing. Maybe they put all of their eggs in one basket - their employer's company stock, or maybe they bought every hot stock pick on CNBC, or invested in the top performing mutual fund. Either way, the market's down now and folks are crying foul - with no good reason to do so.

Food prices? Yes, they're up sharply. But they're also still pretty cheap compared to people's incomes. Stop and think about it: forty years ago, the minimum wage was $1.10/hour, and a GOOD job meant you were making over $20,000 a year. Milk was $1.07 a gallon, chicken 39 cents per pound, and a dozen eggs cost 53 cents. Today the minimum wage is about six times higher, college graduates START at an average of about $45,000 a year, and a good job often pays over $100,000 a year. Today's $4.50 milk, $1.29 chicken, and $1.75 eggs hardly seem out of line by comparison. Still, they're a problem for many, especially Americans who are "too busy" (often as not, this really means they just don't want to bother) to cook healthy meals from scratch. They end up buying mostly processed foods, frozen pizzas, or hitting KFC every other night. Those things cost MUCH more, and many folks could reduce their food bills substantially by cutting back sharply on that kind of spending.

Look: I know there are millions of hard-working, frugal Americans, many of whom are having a hard time with this economy. I don't, for the most part, have a beef with them. My lack of sympathy and outright disdain is for the many millions of Kathys and 80 MPH drivers and greedy investors and lazy shoppers in the U.S. I would point out, however, that, aside from the whole housing mess, the economy today is still MUCH better than what we went through in the 70s and early 80s, when inflation and unemployment rates were both TWICE as high as they are now. And today is infinitely gentler than what people experienced in the 1930s.

So maybe after all I DO mostly agree with Phil Gramm. Our economic problems aren't "just in our minds", it's true; but Americans ARE a bunch of whiners nowadays. Whiners who, as the rest of the world has thought for years, are maybe getting a little of what they deserve.