MentorWords

There’s a lot of talk about how everything is changing. But popular analysis and reflection seems to stop just below the dermis of the issue, talking endlessly about jobs loss, the credit crunch, foreclosures, and the anticipated stimulus package. Not that these aren’t important issues, but given that we live in a 24-hour news cycle, why don’t these reporters begin to reflect on some of the deeper issues?

For instance, greed. We talk about greedy bankers and the greedy folks on Wall Street, and there’s no doubt that a culture of entitlement has sprouted from the cracks of Manhattan’s sidewalks and curbs. But what about the rest of us? One of the biggest drivers of our current economic crisis isn’t Wall Street pay scales, but the average homeowner buying not-so-average homes with no-money-down mortgages and inaccurately “stated” incomes. Another problem has been the need to purchase things like RVs, snowmobiles, and large screen TVs using home-equity loans taken against those no-equity homes – creating huge equity shortfalls when the housing market eventually (inevitably) crashed.

What about knowledge? How many people have been investing money in their 401(k)s without taking the time to understand the pros and cons of the stock market? How many people rode the carnival ride of increasing home values without taking time to study the historical cycles of real estate? How is it that we are willing to pay for $250 tennis shoes and $1,000 hand bags, but expect to receive quality news for free?

Business owners and executives surfed the wave of a strong economy, but most failed to use those flush times to invest in infrastructure, reduce debt, or restructure to prepare for the inevitable shift in economic tides (how many metaphors do I have going now?). Of deeper concern is how many business executives have failed to keep pace with changing technology and consumer behavior.

Just 24 months ago the big forecast was that we would be 10 million laborers short of demand for workers by 2010, due to the en masse retirement of baby boomers and the seemingly endless upward trend of the economy bolstered by significant development in China and India. Now we have lost over 2 million jobs in the U.S., job losses are mounting in Europe and Asia, and consumers all over the world seem to be hunkering down for a protracted recession.

I do believe we are in for a long recession, but I don’t believe we are repeating the Great Depression, nor do I buy in to the idea that we are on the verge of world collapse. I do believe that we must change both our habits and our expectations to fit the demands of a world that is transforming before our eyes, not magically, but as a direct result of our behavior to date.

So here, in no particular order, is my prescription for preparing for the change in which we are now embroiled.

1. Scale back. It’s time to reassess how much we need to be happy. The past decade has witnessed a love affair with magazines like Real Simple and a return to hand craft, but we simply acquired those tastes as part of our overall acquisition frenzy. Reassessing how much we need to buy won’t solve the crisis at retail – but the crisis at retail is self-made. Our economy in the past 25 years has grown almost entirely on the impetus of consumers who thought we needed exponentially more than our parents and grandparents required to be happy.
2. Prioritize. We had the scale-back discussion as a family over two years ago. We decided to get out of our ridiculously expensive house, buy a house for cash in a part of the country that had more favorable cost of living and economic opportunity, and be more conservative in all of our purchases. With one exception. We agreed that it was a priority to consume organic food, which continues to cost significantly more than chemical-laden supermarket fare. We agreed that to do this we would reduce our restaurant eating to one time per month and that we would grow as much of our own food as we could. Are we spending more money on food? Yes. Are we still scaling back? Certainly. Each person and family must decide what the priorities are and invest accordingly. It would be an added bonus if we would all try to make the world a better place in the process.
3. Volunteer. Of course you should volunteer because it’s the right thing to do. The nice thing about doing the right thing morally or ethically, however, is that it is often the right thing to do economically. If every citizen between the ages of 16 and 68 would volunteer just one (1) hour of their time per month, we would produce over 288,000 man-years of volunteer time. How many economic problems and government funded efforts could we solve and surpass with this most marginal of volunteer rates?
4. Reinvest in learning and knowledge. Fox News, MSNBC, and most newspapers do not represent knowledge. At the very best they represent information. If you want to improve your economic standing – to say nothing of your quality of life – invest in learning from reputable sources. How do you find them? First, you go back to your prioritization list and you decide that you’re willing to pay for knowledge – because all of this spewing of opinion and reportage on the internet – including this blog – are not editorially or peer-reviewed, and therefore must be suspect of containing significant bias and error. Peer reviewed journals, published books, and independent newspapers (i.e., not Gannett) are good sources. Make sure you draw from competing philosophies too. For instance, if you’re going to read Time Magazine, make sure you also read the Economist, Reason, or Human Events.
5. Save – which includes paying off credit cards, investing in retirement funds, and buying your necessities with cash (or with a credit card you pay off monthly). This is not to be confused with stuffing your savings in a pillow case. This is to suggest that our tendency to use credit cards as a form of income has been predictably damaging. The stock markets are no more an indication of the overall economy now than they ever were, and they will come back. Cash directed to future needs in the form of stocks and mutual funds, and held as ready cash in the form of savings accounts and CDs, will help rebalance the economy away from retail dependence and into long-term viability.
6. Be forward-looking. My advice to business owners and managers has consistently been to look into the future and figure out how to meet changing needs, but this is solid advice to individuals as well. One of several reasons we moved back to the Midwest was that we didn’t want our grandkids to be rooted in a region where water disputes are likely to drive the cost of living past the tolerable point. Is that drastic? Maybe. Maybe not. The point is, we all have a responsibility to look to the future and make life choices based on what we see there (using real knowledge and a willingness to scale back and save, of course). What will be required of you in terms of technical skill in the near term? Where and how will you retire? How will a return to $4/gallon gas affect you, and how can you take advantage of shifts in energy production? How will ubiquitous broad-band change the way we work and play? Since we can’t put any 10 economists in a room and have them agree on anything, you might as well make your own forecast (using reliable – and likely contradictory – information, of course).

My personal prediction is that we will see economic improvement by the end of 2009. I expect the economy to remain sluggish for a few years, but we will all survive it. However, we have seen a series of bubbles-and-bursts these past 15 years. Do we want to go through that again? Already some financial wunderkind is trying to figure out what the next crazy money-making scheme should be. Let them. We don’t have to be silly enough to fall in bed with every sexy investment strategy we meet. Sometimes it’s nice to know we’ve become mature enough to simply look . . . then pass on by.

(c) 2009. Andrea M. Hill