Follow-up economy comments

Out of respect for your time, I will try to piece together my disjointed socioeconomic ramblings below into a brief(ish) argument: Investing - built on credit, poorly regulated, and enhanced by technology - has become too prominent in our economy and the American Dream, devaluing honest labor and savings ethic. That which used to guarantee a decent quality of life is no longer sufficient, so families need to take more risks, waste more money, and partner with exploiting capitalists to achieve more financial security, or at least project the image of success. So in order to pursue the life goals that we were indoctrinated to believe that all Americans should pursue if they want to be somebody, we have to go to bed with the financial services sector. We are placing our resources, hopes, and futures in the hands of pathological gamblers who may not have our best interests, nor long-term interests, at heart. If all goes well, it is a mutually-beneficial symbiosis between those who control the capital/means of production, and those who provide labor and assume most of the direct risk. Such a paradigm can increase wealth (not evenly though), but is destined to fail at times, which poses huge consequences proportional to one's status on the economic totem pole.

The nefarious genius of such a stealthy system is that people don't have to be evil to commit evil. There are only a few blatant assholes out there like Madoff or Skilling, little Hitlers with an MBA. But for the rest of us, we are just trying to do our best and follow our self-interest within reasonable limits. We do what we're told, and mostly follow the rules, yet the very actions intended to grow our wealth actually endanger it. We now know that even the smart and rich are not immune either, but they at least have a cushion to soften the blow. It's not like every broker or banker is out to screw us, and many of them are heartbroken that they allowed their clients to lose so much (maybe concerned for them even above their own losses). And it's not like every Joe is living beyond his means and taking shortcuts. But Americans want a lot out of life, and in order to get it, we almost feel obligated to buy into this unsustainable system. We are all so entrenched in our bad habits that we would rather bail out the screw-ups (at huge expense) than reform the way we use our money. So when we finally come to our senses and admit the hazards of current economic trends, we have to work out some wholesale changes. I'm not in a position to know or dictate what those changes are, but I would hope that we can reduce our reliance on leveraged speculation to achieve financial objectives, restore importance/stability to labor, and accept that moderated expectations and a humbler quality of life can still be comfortable, satisfying, and in fact preferable to excess. Crafting and enacting policies that encourage those behaviors and reduce recklessness/greed is another challenge. But at least we can start to wean ourselves off the Kool-Aid, blindly believing that "the magic of the market" will solve our problems and deliver all that we desire.

Read on for more details, if you're masochistic enough...

I can understand how the survivors of the Depression would want a better life for their descendants, and maybe aggressively pursue financial well-being so their loved ones "never again" have to suffer so much. But I would hope that they also remember what caused and worsened the Depression: ignorance and greed. So yes, it is a fine American tradition to want to improve your lot in life through work. But what about the equally important values of honesty, discipline, simplicity, and sharing? Most parents would want their kids to do better than they have. But what about those who are already doing well? Do they need more, especially at the expense of the less fortunate? During the Roaring '20s and today, the wealthy have gained more than anyone else, even though they already had a higher starting point. It is because of their pre-existing capital that they were able to profit more from wild investment booms than the rest of us. But we know this already.

Yeah, the irony of this "generational war" is that none of us really has a problem with the Boomer who moved to a new town with the shirt on his back, and worked hard for 30 years in a factory for a humble pension, or maybe even started a small business. And no one faults the Net Gener who grew up in a tough urban area with a single parent, and is trying to work her way through community college to become a nurse. I don't think those type of people have a problem with each other either. They're not looking to grab the world by the horns or gain at the expense of others. They just want a simple, humble American existence with a few guilty pleasures here and there. They chose live and let live, and have more decency to let their greed harm anyone.

But the stodgy managers and the spoiled snowflakes are from said generations as well, though actually cut from the same capitalist cloth as Lis said. They detest each other (and we detest them), yet one created the other, and one is following the other's example (or even attempting to exceed it). The latter is the manifestation of everything that went wrong with the former. The coddled Gen Yers think that they are entitled to a great life, even surpassing Boomers, as long as they jump through all the societal hoops set before them (as if their trust funds weren't enough concessions). The greedy Boomers think that they earned everything they got (a Nixonism), and now being on top of the food chain, why should they give it up or accommodate to the youngsters? As J said, it's a centuries-old story updated with new details (Socrates even wrote about it).

80% of the Boomers and Net Geners are decent, honest, hard-working people. But the greediest, meanest 20% mess things up for everyone. And since they hold the power, they design society in a way that their bad behavior is protected, rewarded, and even admired (instead of prosecuted). It almost seems like we have to be like them if we want a decently comfortable life. Though of course a fulfilling life doesn't necessarily depend on how comfortable you were or how much assets you accumulated. Just as modern politics render it impossible for Boy Scouts to survive in it, an "average employee" won't get far in the workforce by his/her labor alone. Like those annoying "Rich Dad, Poor Dad" books and seminars, there is constant pressure for us to grow our wealth beyond our labor potential, but instead through capitalistic schemes (a.k.a. investments). No Western economy ever crashed because its workers or widgets weren't good enough (maybe the Confederacy is a rare exception). Markets crash economies because the people manipulating them were greedy, dishonest, and stupid. Market forces destroy honest, necessary companies (just because they didn't meet sales forecasts), and put thousands of good workers on the streets. Of course markets also reward business success, but only the big fish on Wall Street are really poised to benefit, especially when inflated prices preclude small-time investors from participating. So the very instruments that allow Average Joes to ascend the economic ladder also cause the ladder to come crashing down. What are we to do? I know plenty of books and business courses focus on this serious, complex issue, but so far we haven't really found a healthy balance.

The financial services sector is bloated and out of control. As a percentage of S&P500 market cap, it has grown from <5% in 1980 to 22% in 2004 (not sure if the number is now lower due to stocks tanking). Not surprisingly, total US credit market debt has doubled in that time period too (now it's over 3X GDP). So the more we leverage ourselves to ruin, the more Wall Street profits. The number of business-themed networks on TV has grown from 1 in the 1980s (anyone remember FNN?) to dozens today. It seems like all we ever hear/care about is the economy. People actually make decisions because the Dow went up or down 20 points, believing that such a change actually means something, even though it's clearly just noise. Emotional, knee-jerk investor reactions endanger us all. We might as well base our financial planning on palm readings. But seriously - it's our national religion, and it's just as irrational. Some people have completely forgot about prudent, long-term investing: http://www.nytimes.com/2009/01/11/magazine/11wwln-lede-t.html?_r=1&scp=1&sq=Lowenstein%20ponzi&st=cse. The Boomers were raised by their Depression-survivor parents to only buy what they could afford, and many didn't even have savings accounts (wary of bankers). Yet now, E*Trade claims that they are opening up thousands of new accounts a week, and they're not the only ones. America's personal savings rate has plummeted from 26% in 1944 to -1% these days (even before the credit bust), because we're buying more crap and going to the "legal casino" instead. There are pros and cons to this economic transition, but I think it's clear that we haven't really grasped the gravity of it all, its growing/evolving so rapidly, and we are mostly powerless to control the beast.

Sorry - I don't mean to get into a Marxist diatribe about capital-labor struggles. Today, one cannot exist without the other, and even China has reversed its ideology (and it pulled at least 300M people out of poverty). But the trends show that people can make much more money through investing, while wages and earning power are losing ground vs. cost of living, even for white collars. So what can be done? Only a sucker would remain a laborer, right? The market is our ticket to the promised land. We're already trading everything from the likelihood of terrorist attacks to commercial debt to who wins presidential elections on open markets, but how many brokers does the world have room for? We still need bakers, teachers, welders, and cabbies, right? What about them, whose lower wages make it nearly impossible to invest without terribly leveraging themselves and their loved ones.

To move beyond the haves vs. have-nots cliche, maybe the delineation is between those who have the capability to exploit others for profit, and those who don't - or should I say, those who are dependent on the former to make a living. Many employers do take care of their workers, but usually get more out of them than they put in (they're not charities after all). And few of us get to dictate the terms of our employment without collective bargaining (but unions charge dues and may not do much). Brokers and bankers use our money to make themselves and their institutions richer (legally we hope). Yes credit makes the world go round, and gives people a chance to start a business, increase productivity, or buy their dream car/home. Yes some of us peasants can get lucky with stocks and real estate, but for every buck we make, those above us are gaining more. So I doubt the lender would like to trade places with the borrower. But why should the lenders, insurers, and traders enjoy more of the spoils? Forgive my disrespect, but they move numbers on a screen or dip into their treasure chests to throw us a few nuggets, then just watch the money flow in. The borrower submits to their terms, contributes most of the blood/sweat, and stands to lose much more when things go bad. So I hope that our leaders don't dismiss our fury over the exploiters getting bailed out more than the rest of us, just because it's more "costly" if they fail. And then there's the illegal exploitation by drug dealers, pimps, and despots. Sadly, some of their beliefs and methods are not so different than the financial sector's, and the line between legal and illegal exploitation is almost arbitrary.

The bakers, teachers, welders, and cabbies of the world don't have the training, resources, or ethics to do what the exploiters can, and thank goodness. The world will always need those workers (probably more than the brokers, and at least they usually don't hurt anyone else). So are they just forever doomed to financial insecurity/mediocrity? In order to get an edge, we need to call on the exploiters to improve our lot in life, so even though it makes our blood boil, we have a vested interest in their success (and rescue). In nature, a parasite can better secure its survival by making it very painful (or lethal) for the host to ditch its unwelcome guest, and I see Wall Street didn't sleep through biology class. So in order to pursue the life goals that we were taught that all Americans should pursue if they want to be somebody, we have to go to bed with the people who may prey on us. If all goes well, it's a mutually-beneficial symbiosis (even if they make out better). But the exploiters are under constant pressure to increase profits, so if they don't want to work harder, then they have to squeeze us more or just cheat. And the only way we can get out of the gutter is to work with them or become them. I can't believe that so many people go to business school and work 80-hour weeks on Wall Street because they just can't get enough researching stocks or selling mortgages. Let's get a grip before we lose it.