Our Fickle Economy
– by David Matthews 2
“Luck be like a lady”, as the old Vegas song goes.
Unfortunately more often then naught, luck IS very much like a lady… and a fickle one at that. Fickle, cranky, self-absorbed, and scornful when feeling neglected. Gracious at first, but vindictive and manipulative once she gets to know you. That’s why gambling addicts run into a mean losing streak. Luck is gracious and generous at first to them. But then luck is fickle and vindictive and makes sure that you lose more than you gain so you can never get back to those early times when you were prospering.
Even sadder still, our economy is the same way. When propped up and supported, our economy can be very generous. But when feeling used and manipulated, our economy is a real bitch.
The biggest fallacy being made by those in government is that they are responsible for all of the economic good times that occur. That of course is far from the truth. They do have some influence, and they can manipulate certain environments that can have a positive or negative effect on the economy, but they are far from being the MASTERS of the economy. If that really were the case, then they would be doing everything in their power to make sure there are no economic down turns, especially at the end of a president’s tenure.
The President of the United States and the men and women that make up both house of Congress are not solely responsible for the rise or fall of the economy, but they are responsible, along with governments large and small, for creating environments that can either foster economic growth or hinder it.
Let’s look at what’s been going on with our economy in recent years.
The best way to describe our economy over the past eight years has been “forced”. The mini-recession of 2000 and 2001 started in 1998 when the economy tried to recover from the excesses of the “Dot-Com” boom. The Federal Reserve started cutting interest rates to try to offset the loss of jobs and business opportunities, but it didn’t work.
The Bush Imperium thought that handing out money would kick-start the economy, so they did that, and they gave tax cuts to the upper-echelons and told them to invest. 9/11 forced even more money being spent to bail out the airlines and to encourage us to spend like there was no tomorrow.
But during that whole process, there really wasn’t any effort to fix any of the underlying problems with the economy.
Job growth didn’t keep up with the demands of the economy. Real wages crawled compared to the profits of corporations. Companies didn’t create jobs. Instead they outsourced their jobs to other nations. Even the corporate failures of 2001 and 2002 with Enron and WorldCom and the others didn’t address the underlying problem with corporate priorities.
Mergers happened. Big banks became mega-banks. Mega-banks became monopolist banks. Big corporations bought out their competition instead of trying to outdo them in the market.
And the government saw nothing wrong with any of that as long as they reported record profits. “Do what you want,” they told Big Business, “just don’t go under.”
Yes there was a surge in housing prices as well as a surge in new houses built, but that was a forced situation. Lenders took advantage of low interest rates and the elimination of banking rules to talk people into refinancing their loans to the kind that would later hurt them. Sure, defenders of the subprime loans would tell you that they allowed loans to be made available for more Americans that would otherwise not have the opportunity to get their own homes. But what they do NOT tell you is that many of the people who ended up getting talked INTO those subprime loans were already eligible to get NORMAL loans. In fact it came out that realtors were encouraged by lenders to steer their clients towards getting subprime loans, even if they could afford normal ones.
That set up a dangerous situation with the banks, and there were plenty of people that warned that it would happen. All it would take is a little time and the rising of interest rates for the trap to be sprung. And that’s exactly what happened.
The push to build new homes and reinvest and increase one’s home value through expansion and home improvements created a price bubble that local governments and realtors and lenders foolishly believed could go on forever and ever. It didn’t.
Here’s the problem: developers were buying huge plots of land, stripping them down, and having builders build homes and shopping centers and office complexes, thinking that the buyers would just show up and buy them. And local governments approved them blindly, envisioning the oodles of property tax monies that would come into their coffers. They didn’t think that there would be a saturation point to all of that growth.
What happens when people stop buying the houses being built? Or when they can’t afford to make the mortgage payments? The bubble bursts.
Even worse, THIS was the truth source of the “growth” in our economy. The so-called “happy days” for Americans in these Double-O’s came through the housing bubble. It allowed them to take loans out on the overinflated values of their homes and used that to supplement their income. It was a short-term fix that was doomed to fail because there was nothing else sustaining it. It was the market’s version of cocaine; a quick rush but then a hard fall awaits.
But what else went unfinished? Our energy resources were being abysmally managed. You can thank Enron for some of that, because they lobbied Congress to give themselves more and more power and more and more control over energy resources and influencing market prices. Futures speculators now outnumber actual energy companies in the stock market by a ratio of two-to-one! Now FEAR is the major factor in energy prices.
But there was more than just market fear-mongering. Nobody did anything to better manage our resources. No new refineries, no replacement of pipelines, no new places to drill, and no drop in the amount of oil from foreign sources. In fact, if anything, we continued to get more and more oil from places that don’t really like us. That GAVE the speculators reasons to panic and drive the prices up even higher. The automakers didn’t pay attention to the rising prices either, and now they’re in a freefall.
We have poor management of the airlines. Rising energy prices added to their financial problems. More flights at crowded airports, incompetence and mismanagement at the airports over those added flights, and then poor service to go along with it. Now we have airlines that can’t afford to fly you from Point A to Point B without tacking on a fee for EVERYTHING, including the luggage you have, AND possibly postponing you from leaving through excessive delays, if they don’t first bump you from the flight because they overbooked it or kick you off the flight for wearing anything they find offensive.
And I cannot forget to mention the changes that were made to banking rules and to bankruptcy rules, both of which were done at the height of the forced “growth”, and without too much thought put into the consequences to making those changes.
We were encouraged to spend beyond our means. We were encouraged to put more and more of our lives on debit, taking our lead from our own government. And then once they have us hooked, then they started putting the screws to us until we broke.
Let’s get brutally honest here… ALL of those things contributed to the state of the economy we are in right now, with unemployment and foreclosures soaring, and everyone wanting and needing a bailout.
So what will it take to get out of this mess?
Well for starters, we need to give this economy some time to be miserable. The bleed has only just begun. There will be more foreclosures and more failures and more layoffs. I wish it were otherwise, but it needs to happen before we can move on.
The government can help with the subprime mortgages, but they have to convert them to NORMAL mortgages; they can’t simply let the banks continue the bad practices. They also have to step in and reign in the abusive practices of the banks.
Companies need to be encouraged to invest in their employees again instead of treating them as hostile participants or parasites. Stop the outsourcing, especially to foreign nations. The government can step in and stop the abuse of the visa system that has allowed corporations to bring in cheaper workers into this country.
Our resources need to be better managed. The loophole that Enron created to give themselves power and wealth needs to die like its CEO did, suddenly and in disgrace. But the actual resources that we have now need to be better managed as well. We need new refineries, new pipelines, more domestic production, but also we need to get the alternatives implemented and marketed. The time for talking and for researching has long since expired. We need these alternatives moved into production NOW.
Airlines need to be better managed. The fees need to end. The abusive treatment of the passengers, either in waiting times or in service, needs to come to an immediate end. And if it means that airlines have to collapse, then so be it. Let them fall.
Our government needs to abandon the concept that ANY business is simply “too big to fail”. Businesses need to succeed or fail on their own, no matter how “big” they are, so they will know what works and what doesn’t.
In short, folks, if our economy is like a lady, then we need to treat it like a lady and not like a whore.
If that analogy seems shocking to you, then understand that it is precisely how our government and how the business world has treated the economy, as well as treated the workers and the customers. They have treated all three like a bunch of cheap whores that will take care of them come rain or shine without any hesitation, and that is simply unacceptable.
Changing players in government is but a start to weathering our economy back into its good graces. There needs to be a chance in attitude amongst those in the business world as well. Instead of finding new ways to use and manipulate us, the business world needs to earn back our trust and our confidence before we will give them a second chance.