Thoughts on today's economy

I don't really write much about the economy here, so I hope readers will indulge the occasional post.

Until last year, my 35-year working life has been a series of mostly forward moves. There were some bumps, of course. I got fired a few times, got divorced, even got my nose cut off once – but overall I moved ahead on a year-to-year basis.

My success was made possible to a large extent by the broader success of the US economy during that period. Until last year, some of the many economic indicators were always up. Inflation might be high, but unemployment was low. Or else the reverse was true. Through it all, people bought more stuff every year, so there was a constantly increasing demand, which created opportunity.

As long as the trend was up, I felt I could plan my life. I didn’t know high or how fast, but I had a reasonable expectation that life would get progressively better at some rate.

All that changed at the end of 2007.

When all the indicators turned down at once, the rules were fundamentally altered. When conditions rise, tensions ease and life becomes generally better for most people. That’s a formula for stability. When conditions fall, the result is the opposite. The closer the numbers get to zero, the greater the risk of collapse.

My car company has seen a 25% drop in service revenue over the last six months. I’ve never seen a change of that magnitude in the 20+ years I’ve been in the car service business. No one wants to spend any money. I can cut expenses, but that only goes so far. What if business falls another 25%, or even 50%? What happens when it’s no longer possible to pay the bills? That’s a situation I have never faced, because I lived in a world where forward progress was the general rule. That’s not true any more.

I thought diversification would protect me as I got older. It hasn’t. The market for my second book evaporated as publishers close divisions and lay off workers. I lost a tenant in my rental operation, so revenue is down there. My stock investments lost 35% of their value. My house lost a quarter of its value. My commercial buildings are sinking too. Nothing is immune. Even my collector cars have lost value.

It’s a male trait and an Asperger trait to judge my own self-worth by what I accomplish. For most of my life, that’s meant my work accomplishments. With every work activity in some state of failure, it’s no wonder I’ve sunk into a persistent depression. I’m sure many others are in the same boat.

Upward trends equal relief, because up is better. Downward trends end in a very bad place, and every day of new bad news just brings the seeming inevitable collapse a bit closer. Frankly, I'm surprised people are holding up as well as they are. Or are they? We had a spate of newsworthy suicides last fall, and one of our customers killed himself two months back.

Where will it end? If this year’s rate of decline continues - 20% every two months – the year will end with the Dow at 2,200, which is essentially what happened in the Great Depression. What would that mean in today’s world? Perhaps we’re about to find out.

There has not been an increase in crime where I live, but I imagine that’s coming. When times get hard some people start grabbing from others. Could unrest spread beyond individual criminality? Will newly-bankrupted countries go the way of Somalia? Even more, I wonder if they’ll turn on us as the cause of their trouble.

Could something like that happen in the United States? Can we maintain order during a cold winter with 35% unemployment in the old industrial cities? Or will the residents burn them for warmth? I fear for places like Buffalo and Detroit.

I wonder how the government is going to pay for all their recovery plans. Everyone knows about the deficit spending, but what no one talks about is the idea that tax revenue is going to collapse next year, as high income taxpayers stop paying taxes, because they are now losing money. And many others will go underground, running home businesses for cash, just as people did in the 1930s. So where will the government get its money? They can only print illusory money for so long.

I’m very concerned that a financial collapse will turn quickly into a societal collapse. You can foreclose and take one house in a neighborhood, or even ten. But at some point, the homeowners are going to take up arms and say, Screw you, we’re staying! What happens then?

I know the government hopes to prevent that by encouraging banks to adjust mortgages to keep people in homes. But if economic activity falls far enough, the affordable level may be very low indeed. If the stock market falls 60%, it may take a similar mass write-down of mortgages to keep most of them affordable. But doing so would wipe out most banks in the country.

My own son is just now becoming an adult. The world he grows up in will surely be very different from the one I knew.