12 Most Revealing Reasons We’re in this Economic Slump and What to do about it
When the financial markets imploded in 2007, the experts predicted a massive bailout would turn the economy around, since the banks would have money to lend again. They thought US housing prices would soon hit bottom and rebound. Last time I checked they’re still falling in many areas. Same with unemployment: it’s stubbornly hovering at painfully high levels. There’s nothing like a little perspective to help you navigate tough times. While no expert on the matter, I’m always curious as to the deeper “why” we’re here question. Here’s where I’ve landed to date – feel free to add your perspective of course!
1. It’s not going to be fixed by a single guy in the White House
It’s funny how easy it is to stake the claim that you’ll do better at turning the economy around than the next guy. If only it were that simple. This is a problem that requires public, private and everyone in between to solve. We took time getting here and it’ll take time getting out of it. There are no easy answers.
2. We’re making the long slump longer
Focusing on cutting government spending rather than investing in technology, education and innovation – things that will position people to shift to the new types of jobs that will drive growth – we’re making the problem longer and worse. No one seems willing to publicly acknowledge and act on this.
3. This time we really are moving to a new economy
The Dotcom era was billed as the new economy. But THIS is the real new economy. The reality is that once stable white collar jobs aren’t. Technology has eliminated the need for so many that we’re moving to a service economy. Just as during the Great Depression we were moving from an Agricultural to Industrial Economy as advances in farm production caused prices to plummet and we no longer needed 1/3 of Americans working to produce the food on our tables. The jobs we’re losing are not coming back.
4. World War 2
The only thing that turned around the Great Depression was the massive investment by the Government in infrastructure for World War 2. It wasn’t the New Deal and it wasn’t the private sector that stimulated the economy. This spending moved the workforce from farms to Factories and broke fall according to economist Joseph Stiglitz who’s written extensively about our financial situation. So far we don’t have many in office promoting heavy spending on updating our infrastructure – roads, highways, etc. And I’m certainly not in favor of another war to turn it around this time.
5. 23 Million Americans
That is the number who’d like a full-time job but can’t get one. And state governments are laying off significant numbers of people from what used to be pretty darn stable jobs – to the tune of 700,000. While the unemployment rate might be hovering around 8.5%, the real unemployment rate – in Oregon at least – is 17%. This includes those who have either given up looking for work or have a part-time job but want full-time. Unemployment in the Great Depression was 25%.
6. We were supporting our lifestyle with debt
By 2007 the savings rate was near zero and we kept our lifestyles going with debt. And it may be less. Because the rich save a significant portion of their income for a rainy day, they skew it for the rest of us. Many are likely going negative. Not sustainable long term.
7. The banking system is broken
And it continues to stay that way. It operates without restrictions free to do what it feels best to enrich those at the top rather than serve society. They didn’t use the bailout to help the majority, and the immense wealth created by the bonuses and excessive compensation have disenfranchised most. When you have a company like MF Global which lost $1.2 billion of their customers’ money, how can you have faith your money’s safe anywhere. The small investor doesn’t have much of a chance.
8. We’re no longer the land of opportunity
If the last few years have taught us anything, it’s that the pursuit of the American Dream can be elusive. Our standard of living is lower than it used to be and not likely to change. It may be small comfort, but we still have a much higher standard than most of the world.
9. We won’t raise taxes on the 1%.
Warren Buffett talks about how taxes are not all bad and that he pays far less than most of his employees as a percentage – 17.67% versus the 30% most of us pay. This is far lower than any time in recent history and is not sustainable. He also argues that paying taxes hasn’t deterred the rich from investing in businesses. Cutting taxes is a nice platform to campaign on, but it doesn’t do anything to fix the economy. In fact it makes it far worse.
10. Bipartisanship bickering
The constant bickering by both parties distracts those we elect to represent us from doing any real work. If they cannot concede that anyone not in their party has a worthy idea or can offer support, how can government put in place the dramatic changes needed to turn the economy around? They can’t. The changes needed today aren’t easy and won’t please everyone. They require political leaders to set aside self-interest for ‘we the people’. Doesn’t seem likely anytime soon.
11. Real estate continues to explore the bottom
In 2008, 2009, 2010, 2011 and now 2012 the ‘experts’ predicted that real estate would/will hit bottom which means it would then start going back up. If this tells you anything, it’s that no one knows where the bottom is, or how long it will last. Until we fix #5, we’re not likely to see this change very quickly. In some areas of the country where manufacturing and service jobs are NEVER coming back, there may be no recovery. It’s part of the disruptive change that happens with a move to a new economy. Such areas need to completely reinvent themselves to rebound. Much like Oregon has had to do in transforming from a Timber to Technology state. (Many areas are still suffering).
12. A culture of fear
Everywhere you look, someone’s telling you to be afraid. Whether it’s terrorism, financial or environmental doom, someone’s predicting the next disaster. Fear is what makes the media money. It captures your eyeballs and companies bank on your fear driving purchase decisions. I recently read how we’ve transformed into a national security state driven by ever increasing secrecy and security. Problem is, I bet you feel less and less secure. And more fearful. While, yes, a lot of bad stuff is happening all around us, allowing that to run your life prevents you from doing the work that matters to yourself and society.
As a business professional, what do you do? If you’re waiting for this to blow over, you’ll be waiting a LONG time. There’s a lot of wealth to be made in a downturn. Wealth that can also do social good. You have to retool your thinking. You have to take action. Invest in the things you and your business need to compete in a new reality. This is going to be messy. Many more people are going to be hurt just as they were 80 years ago during the Great Depression.
You cannot control the weather or the economy no matter hard you try. What you can control is your response. Do you let these forces paralyze you or acknowledge that yes, things are less than ideal, but seek out the good and find a way to thrive no matter what?
Featured image courtesy of epSos.de via Creative Commons.