Condemned To Repetition

George Santayana memorably observed:  “Those who do not remember the past are condemned to repeat it.”

Hey, does anybody here remember 2008?

isantay001p1A report released yesterday by the Federal Reserve discloses that Americans have just set a new record for accumulated credit card debt.  The grasshoppers among us had saddled themselves with a total of $1.021 trillion in outstanding revolving credit in June, just edging out the previous record of $1.02 trillion set in April 2008.  Total household debt in the U.S., which totes up housing, auto, student loan, and credit card debt, reached a new record of $12.72 trillion in March, which also passes its 2008 peak level.

Of course, those of us who do remember the past recall what happened in and around 2008 — banks failed, the subprime mortgage bubble burst, and the economy was thrown into the Great Recession.  For a while, Americans reacted by tightening their belts, paying down their credit card debt, and getting rid of some credit cards — but those days of responsible consumer behavior apparently are long over.  Recently, credit card debt has been growing at an annual rate of 4.9%, and more consumers are getting access to credit cards.  More than 171 million consumers had access to credit cards in the first quarter of 2017, which is the highest such number since 2005, when about 162.5 million people had access to credit cards.  And some banks have made the conscious decision to provide credit cards to people with subprime credit scores.

Gee, what could go wrong with this scenario?

It’s all not-so-vaguely and scarily familiar, but a lot of people apparently just don’t care.  They think times are good now, and therefore times will always be good — so why not use that credit card to buy another impulse purchase consumer good that they don’t really need?  The problem is that, in our interconnected economy, the irresponsibility of the grasshoppers can pull down the ants among us, too.  If the heavy credit card borrowers start defaulting on their debts en masse, and banks and businesses start feeling the pinch, we’ll feel the unfortunate results, too.

If Santayana were still with us, maybe he’d change his famous statement to read:  “Those of us who remember the past but are unfortunate enough to live with other people who do not remember the past are condemned to repeat it, whether we want to or not.”

Another Potential Cultural Shift

The U.S. Census Bureau recently announced that a greater percentage of Americans are renting than at any time in the last 50 years.  According to the Bureau, in 2016 36.6 percent of the heads of households rented their place of residence — the most since 1965.  43.3 million heads of household are renters, and the percentage of renters among heads of household has increased from 31.2 percent in 2006 to 36.6 percent.

120301_24b_forrent-crop-rectangle3-largeWhy are we seeing these shifts?  The authors of the Census Bureau study attribute the movement toward renting to lingering concerns about owning a home stemming from the Great Recession, rising house prices, and young people who are so burdened by student loan debt that they simply can’t afford to purchase a home.  Millennials are the most likely to rent their place of residence:  in 2016, 65 percent of heads of household under age 35 are renters.  And there may be other factors at play, like the potential difficulties of selling a home in an economy where you might need to pick up stakes and move to another city in order to advance in your career.  Who wants to be saddled with a house, and fretting about whether you can sell it, under those circumstances?

I’ve got no doubt that these factors, and others, are contributing to the movement toward renting.  In my experience, young people these days are a lot more thoughtful and analytical about their housing decisions than was the case with people of my generation.  We were raised on concepts of the American Dream in which owning your own home was a fundamental part of the puzzle, and as a result the decision to buy a house was almost a reflexive, automatic act.  Now it seems that people generally, and young people specifically, are more carefully weighing their options and concluding that, for many, renting makes a lot more sense — whether it is because of a desire to be flexible, or because renting often allows them to live closer to their workplaces and areas that offer lots of social activities, or because living in an apartment building can provide a kind of ready-built community, or because of concerns about getting stuck with an overpriced house, or something else.  It’s one of the reasons why, in Columbus, the rental market is exceptionally hot and people are building new rental units left and right.

We may be seeing a shift in cultural norms, away from defining success as owning a tidy home in the suburbs and mowing your lawn every Saturday during the summer.  If, like me, you’re not a fan of suburban sprawl and would like to see our existing city areas revitalized, the movement toward renting is not a bad thing.

 

In Our Own Personal Silos

The Brown Bear sent me this interesting article from The Economist.  The article is, on its surface, a rumination about Ohio Governor John Kasich and his new book, Two Paths:  America Divided or United, but the interesting stuff in the article wasn’t so much about the book as it was about our country.  It’s one of those articles that leave you nodding a bit, as you find that the conclusions drawn square with your own experience.

The gist of the underlying sociological message in the article is this:  Americans have become more and more confined and channeled in their interaction (or, more accurately, lack of interaction) with other Americans.  It isn’t just that Americans spend more time in individualized pursuits, such as watching TV, tapping away on their smart phones, working out, or surfing the internet — it’s that their entire lives are being designed, shaped, and structured to limit their exposure to people with different backgrounds, interests, and views.  In short, more and more people are living in their own personal silos.

silosOne element of this phenomenon is that Americans now are much less likely to participate in joint activities — be it bowling leagues, fraternal organizations, churches, or community groups — than used to be the case.  Alexis de Tocqueville noted, in the classic Democracy in America published way back in the 1830s, that Americans were unusually prone to forming associations and joining groups.  That remained true for decades; Grandpa Neal, for example, bowled in the Masonic League in Akron for more than 60 years and was a member of the Masons, the Odd Fellows, and a host of other civic and fraternal groups.  How many people do you know these days who are willing to spend their weekday evenings and weekends away from their homes and participating in such activities?  I don’t know many — and I include myself in that group.

But the change is even deeper than that.  The Economist article linked above notes that Americans now tend to live in distinct enclaves with people who share their political views and conditions.  One indicator of this is voting patterns in elections.  In the 1976 presidential election, some 27% of Americans lived in “landslide counties” that Jimmy Carter either won or lost by at least 20 percentage points.  In the 2004, 48 percent of the counties were “landslide counties,” and in 2016, fully 60 percent of the counties in America — nearly two thirds — voted for Donald Trump or Hillary Clinton by more than 20 percentage points.

What does this all mean?  It suggests that many Americans now tend not to even engage with people with different perspectives.  They don’t see them when they go home at night, they don’t talk to them, and they have no significant understanding of their thoughts, concerns, . . . or lives.  When people are so cloistered, looking only at the kind of websites that mirror their views and interacting only with people who share those views, there will inevitably be a great divide that will become increasingly difficult to bridge.  How do you get people who live in separate worlds, who don’t play softball or attend club meetings or participate in any interactive communal activities together, to understand and appreciate where people of different views are coming from, and why they hold those views in the first place?  Facile social media memes and tweets that depict people of opposing views as dolts, racists, sluggards, communists, or any of the other names that have become so common don’t seem to be working very well, do they?

This, I think, is one of the big-picture issues that we need to address as we work to get America back on track — and like many big-picture issues, it’s not really being discussed or addressed by anyone, because these days we focus on the small things.  I’m not saying, of course, that government should forcibly relocate people to achieve some kind of political or economic balance, or that government should focus on providing tax incentives to encourage people to join the local Moose lodge.  Government didn’t need to do that in colonial America or in the America of Grandpa Neal’s day, and it shouldn’t be needed now.  Somehow, though, Americans need to find a way to start actually talking to, and interacting with, each other again.

Here We Go Again

You’d think that, after the crash of the housing market, the failure of banks, the stock market plunge, and the Great Recession of 2008-2009 that still is affecting the economy in many parts of the country, modern Americans would have learned a painful but lasting lesson about taking on too much debt.

It looks like you’d be wrong.

The Federal Reserve Bank of New York report on household debt says that Americans are collectively approaching the record level of debt that we had accumulated in 2008, and probably will break through that record this year.  According to the report, by the end of 2016 our collective household debt, which includes everything from mortgages to credit cards to student loans to car loans, had risen to $12.58 trillion, which is just below the 2008 record of $12.68 trillion.  Even worse, last year our debt load increased by a whopping $460 billion, which is the largest increase in a decade.  Mortgage loan balances are now $8.48 trillion, which accounts for about 67 percent of the total debt load.  And the total amount of debt increased in every category being measured.

The experts say there’s reason to think that 2017 is different, because there are fewer delinquencies being reported now — about half as many as was the case in 2008 — and fewer consumer bankruptcies, too.  Who knows?  Maybe the banks that are extending all of that credit are a lot more judicious in their loan decisions than they were in 2006, 2007, and 2008, and maybe Americans have become much more capable of juggling enormous amounts of personal debt.

And maybe we’ll all live happily ever after in the Land of Narn.

It’s a good illustration of how people have changed.  Anyone who lived through the Great Depression was permanently scarred by the experience; they became forever frugal, suspicious of any kind of debt, and relentlessly focused on building up their savings and paying off that mortgage so they and their friends could hold a “burn the mortgage” party.  The lessons they learned during the Great Depression were still motivating their decisions decades later.

The “Great Recession” clearly hasn’t had the same kind of lasting impact.  It seems that modern Americans just never learn.

The Dow Hits 20,000

Yesterday the Dow Jones Industrial Average reached a new high, passing the 20,000 level.  The NASDAQ index and the Standard & Poor’s 500 index also are at all-time highs.

gomez3It’s an interesting milestone, and one that is very pleasing to the millions of Americans who have money invested in stocks or mutual funds.  Investment in the stock market — especially through managed mutual funds — is one way the average American can put money away for retirement and (we hope) earn a decent return on our savings.  Over its history the Dow has been pretty dependable in that regard, overcoming periodic drops and crashes and showing significant long-term increases both in absolute terms and on an inflation-adjusted basis.  That’s why, if you’re taking a long-term view, financial planners will tell you that the stock market is the best place to put your money.

These days, of course, there aren’t many alternatives for the average folks.  The interest rates on CDs are a pittance, and the returns offered by municipal bonds and corporate bonds that used to be the bedrock of retirement planning aren’t very attractive, either.  Investing in stocks in “emerging markets” seems pretty risky, too.  Those are all forces that help to explain why the stock market has been on a prolonged bull market run that has seen the Dow triple in value since it hit its low point in the dark days of March 2009.

Unfortunately, some Americans who might have shared in the Dow’s run-up got out of the market right as it hit its low point.  Gallup has determined that, in 2016, only 52 percent of Americans adults have investments in the stock market, down from the all-time high of 65 percent in 2007.  Obviously, many of those people bolted when the market crashed in 2008 and 2009 and they’ve never come back — perhaps because they are too afraid of another crash, or perhaps because they were so hurt economically by the Great Recession that they simply aren’t in a position to invest.  Those who rode out the sub-prime storm, kept their heads, and kept their investments benefited.  It’s a classic example of why anyone who invests in the stock market can’t try to time the market and has to take a long-term view that follows a long-term plan.

20,000 is an artificial milestone, of course, and we’ll no doubt see downturns in the future — but the stock market remains an important way for the average people to build their retirements and plan for the future.  For those who are in the market, 20,000 is a welcome number indeed.

‘Twas The Day After Christmas

It’s the day after Christmas — which for some beleaguered people in the package delivery business is probably about as important as Christmas itself.  This year online retailing once again set a record, which means the package delivery guys have been busting their behinds for weeks and probably are still hustling to deal with the last-minute orders.  As I reflected on the plight of these uniformed soldiers of the modern economy, the poetic muse once more took hold:

The Day After Christmas
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‘Twas the day after Christmas, and all through the land

Fed Ex and UPS remained fully manned

They’ve set a record for deliveries this year

But the last-minute orders have yet to appear

Oh, Amazon!  Oh, Apple!  Oh, Pajamagram!

Your specials and discounts created a jam

The packages and boxes were stacked to the ceiling

The onslaught of orders left deliverers reeling

And because so many waited ’til the last minute

The Christmas Crush?  They’re still in it!

The delivery guys are trying their best

But it’ll take time before they can give it a rest

So if your order hasn’t yet come to your door

Don’t take it out on the delivery corps!

And by the way, I’ll be doing whatever is necessary to avoid going within a one-mile radius of any shopping mall today.

Back And Forth On Globalization

One key theme is Donald Trump’s presidential campaign could be summarized — using one of Trump’s favorite adjectives — as “disastrous trade deals.”

Basically, Trump argues that, for decades, American leaders have been taken to the cleaners by foreign counterparts and have negotiated trade pacts that have cost countless American jobs, as cheap goods manufactured overseas have flooded the United States while companies have moved their operations to countries where products can be built more cheaply.  It’s a theme that Trump sounds whenever he comes to the industrial Midwest and can stand in front of an abandoned factory.

30501Today the Washington Post has an article that adds a bit of nuance to the globalization debate.  It’s about a Chinese billionaire named Cho Tak Wong who has bought a former GM factory in Moraine, Ohio to manufacture automotive glass.  Moraine is one of those “rust belt” communities that have been devastated by the departure of good-paying, steady blue collar jobs that used to be a staple of the Ohio economy, and local officials are hoping the factory will help to reverse that trend.  The Post reports that the purchase is part of a shift in globalization fortunes, as wealthy Chinese businessmen look to parlay their profits in China into purchases of American businesses.

Nothing is ever as simple as a presidential candidate presents it, and trade certainly falls into that category.  And blaming “trade deals” doesn’t recognize the impact that other decisions — like laws imposing increasing wage and benefit obligations on employers, or the ongoing pressure from the American consumer for products at cheaper costs — have had on the exodus of American jobs to places where labor and benefit costs are substantially cheaper.  You can argue the merits of “globalization,” but the reality is that we are in a global economy whether we like it or not.  It will be interesting to see whether what’s happening in Moraine, and elsewhere, will ultimately shift the debate.