How Can the U.S Economy *not* Fail?
March 22, 2008 8:28 AM   Subscribe

How Can the Economy not Fail? Given the debt each of us owes (what, something like $150,000 each?), rising oil costs, cpi going up, infrastructure moved out, failed dollar, failing banks, etc. etc...

What can be done to stop it? Can anything be done? I'm recently married, would like to buy another house - but "things are not looking good at all".... I don't see what Obama and co. could do to fix the way things are going to be left, Bernanke obviously isn't - it *looks* like a derailed train..

Should I be planting potatoes in my backyard?
posted by raikkohamilonso to Work & Money (32 answers total) 4 users marked this as a favorite
I'm not sure what you mean by "fail". Given everything that human civilization has endured, I think it is exceedingly improbable that 2008 is The End. It's only slightly less improbable that Americans will have a substantial decrease in living standards. But, then, I'm no economist.

Buy a house, have kids, go to the movies...
posted by mpls2 at 8:31 AM on March 22, 2008 [1 favorite]

The coming bubble from developing alternative fuels will save us all.
posted by caddis at 8:34 AM on March 22, 2008

Whether the economy is "failing" is not really the right question. Is the economy going to "fail" you in particular may be a better one. This depends on your region, career, health, lifestyle and many other factors.

In the coming recession, some industries are going to be hit harder than others. For instance, finance, real estate, construction are all suffering, and manufacturing has been in trouble for a while. But media and entertainment tend to do ok in recessions, telecom is still relatively strong, etc. High gas prices hurt those with long commutes, and further depress housing prices in spread-out exurbs. Food costs are also rising, so if you have a family to feed and live 50 miles from your job, yes, your life will suck for the next few years. And taxes are almost certain to go up.

On the bright side, the weak dollar goes hand in hand with low interest rates, so it might actually be a good time to buy a house. Just make sure it's energy-efficient and close to work and shopping! The relative cheapness of US assets attracts international investors, which might end up being our route to recovery. Some companies are even moving a bit more manufacturing over to the US, because it's become relatively cheaper.

In short - the economy will suck for a few months or a few years, but it will suck in varying degrees for various people. There are winners in recessions and losers in booms, so it's not like everything goes to hell every time the GDP dips. The economy is a complex and resilient beast, and you should mostly worry about how it will affect you personally.
posted by Mr Bunnsy at 8:41 AM on March 22, 2008 [2 favorites]

you should should plant potatoes in your back yard. and corn. and beans. and tomatoes.

that's good advice no matter how the economy is going.
posted by klanawa at 8:51 AM on March 22, 2008 [17 favorites]

If you didn't read or listen to the news reports of how horrible things supposedly are, would you be worried? How are things for you? You recently married, and are thinking of buying "another" house, which means you must be doing ok.

Never, ever, base your life on fear. You are still as capable and free to pursue happiness and prosperity now as you were yesterday.

Don't let fear of what might happen stop you from pursuing your dreams. If you do, you will suffer the consequences for many years. I know from experience.
posted by Fuzzy Skinner at 9:11 AM on March 22, 2008 [5 favorites]

The situation the US economy is currently facing has occurred in other countries in the recent past. This article from Yahoo news compares the current US situation with what happened in Japan and Sweden. The government will end up bailing out failing banks and it will be expensive. Here’s a quote from a recent Paul Krugman editorial from the New York Times:
The U.S. savings and loan crisis of the 1980s ended up costing taxpayers 3.2 percent of G.D.P., the equivalent of $450 billion today. Some estimates put the fiscal cost of Japan’s post-bubble cleanup at more than 20 percent of G.D.P. — the equivalent of $3 trillion for the United States.

If these numbers shock you, they should. But the big bailout is coming. The only question is how well it will be managed.

But, just as Japan and Sweden recovered, the US economy will also recover. There will be a recession, but it won’t be the Aocalypse (or even the Great Depression).
posted by Jasper Friendly Bear at 9:11 AM on March 22, 2008

Another article from MSNBC on the current situation comparing to the much worse S&L triggered recession of the late 80's/early 90's.

The dollar has not 'failed' as you phrase it in your question. It is devalued, for sure, but you might want to look at economies in the past where currency has crashed and become essentially worthless -- a little Googling will take you there.

It seems to me (and IANA economist, or expert of any other kind) that the next president could get us the hell out of Iraq, scale back the Department of Homeland Security, and use that money to start paying down the debt - similar to what Clinton did when he took office. I'm sure others will pipe in as to the feasibility of this idea.
posted by mattholomew at 9:24 AM on March 22, 2008

I am going to grow an acre of pot. There's my bubble right there.
posted by DenOfSizer at 9:26 AM on March 22, 2008 [2 favorites]

Where did you get the $150,000 figure? The U.S. Government's debt is ~$9 trillion, or about $30k per citizen. Furthermore, the average citizen has assets and savings.

Not arguing that we aren't heading toward a significant economic slow down, but curious where you got that number.
posted by justkevin at 9:33 AM on March 22, 2008

yeah growing potatos seems like a pretty good idea no matter what. tomatos.

and canning food, not that I do it, is pretty cool.
posted by sully75 at 9:40 AM on March 22, 2008

Mod note: a few comments removed - question is really mostly about the economy. OP can be memailed with potato planting advice. thanks.
posted by jessamyn (staff) at 10:08 AM on March 22, 2008 [4 favorites]

One thing to remember is that you never really know where you are in a recession. One of the defining attributes of a recession is that economists cannot even technically call it a recession until after it's over, because it must last two quarters or more, and is based on data that we have AFTER each quarter.

So of course, this COULD mean that we are at the beginning of a super-recession. Or depression. But it also could mean that we are in the middle, or nearing the end of a recession. It's impossible to know.

OTOH, we do know something about what has caused this recession (yes, I'm breaking the rules by calling it a recession), and it had a lot to do with the housing bubble and unwise mortgages, the second having propped up the first. So it's probably not the best time to buy a house, unless you absolutely must.

Buying a house, in most times, is only really a good investment over the long term - and I think a lot of us in our twenties and thirties are in a bit of trouble having come of age in an era when this but of financial wisdom was forgotten. Look at our grandparents - they bought one house and lived in it till the kids were out of the house, and then moved into a smaller place (well, at least mine did). This served their generation well.

BTW, I had a similar freak-out a few days ago when I saw the CPI reports. The media has been as sensationalistic about this recession as they were irresponsible in pushing the myth of an eternal housing boom.
posted by lunasol at 10:44 AM on March 22, 2008

Um, regarding my saying, "it's impossible to know," let's call that hyperbole. Of course, there are always indicators that can tell you where you are in a recession and how long it might last. But there is no way to be sure.
posted by lunasol at 10:47 AM on March 22, 2008

How Can the Economy not Fail?

Because economies rarely just fail. They usually just go into a recession which affects certain industries and demographics more than others. The rise in gas price has nothing to do with this. It has everything to do with running out of oil which is a separate problem.
posted by damn dirty ape at 10:58 AM on March 22, 2008

this economy will go through a recession but fail is on a whole different planet. are people around you giving up? are they abandoning hope and ceasing to work? of course not. everyone still believes in money as the solution to their monthly problems (rent, food, etc). as long as that is true, the system per se will not fail.

I talked to an economist the other day though who must have been the tenth in a row to tell me that the roughest spot is yet to come. she's saving to buy a house in 2009, when she expects prices to bottom out.
posted by krautland at 11:25 AM on March 22, 2008

ZeitGeist. The economy is slowly going down because they are prepping it for the next economy to be instated. There is a reason why entertainment is booming while others are failing. Call me a little nervous, but there is some reality to part 2 and 3.
posted by LittleNami at 11:29 AM on March 22, 2008

I am an economist (this probably biases my views in more ways than I like to think about)

Those comments about it not being the end of the world seem about right to me. It might be rocky for a few months, but things have been much worse in the past and we've bounced out of it. No one really "runs" the economy so I wouldn't worry too much about what politicians might do about it.

Also, looking at it from a personal perspective is a good idea. If you don't lose your job and your spouse doesn't either then it's unlikely it will affect you materially. In fact, a falling house market will probably benefit you as you'll be able to pick up your dream home for less cash than it would have cost you otherwise.
posted by TrashyRambo at 11:32 AM on March 22, 2008

If economies really fail, there is civil unrest and war.

We are so far from that right now. Most people have shelter, housing, and work to do. Standard of living might go down; a lot of people who thought they didn't have to work because of their equity will have to go take jobs which Bush said "Americans are not willing to do;" jobs that they don't enjoy and pay less in real dollars than anyone would like. Those people are not going to take up arms and revolt, or form giant infrastructure-destroying mobs; they may be unhappy but they're not that unhappy.

The rich will continue to get richer.
posted by ikkyu2 at 1:30 PM on March 22, 2008

ZeitGeist. The economy is slowly going down because they are prepping it for the next economy to be instated. There is a reason why entertainment is booming while others are failing. Call me a little nervous, but there is some reality to part 2 and 3.

Looking at the wikipedia page for that movie, I feel like I just fell into a Lyndon LaRouche pamphlet. I think the "unification of Mexico, the US and Canada" theory is the new Trilateral Commission/Black Helicopter paranoia.
posted by lunasol at 2:35 PM on March 22, 2008 [1 favorite]

Given the debt each of us owes - if you're talking about credit card debt and stuff, remember that it actually goes down in real value as the dollar devalues. So hey, problem solved! (Well, not really, but consumer debt isn't going to bring down the US or world economy unless everybody went bankrupt all of a sudden. But they won't; Americans will just continue to work hard and send off their $50 a month or whatever to Visa and everything will be fine.)

rising oil costs - overrated. The media likes to trumpet "record-high gas prices!" but in reality, when you adjust for inflation, cost-of-living, per capita income, better mileage nowadays, etc., it's just not that bad. Do I enjoy paying more than three bucks for a gallon? Absolutely not. But it doesn't look like most people are doing anything differently; maybe if they would, prices would fall. Plant your potatoes so you can eat dinner at home and stay off the road.

I saw a piece on CNN the other day that purported to show that people "had to choose between gas and food". But really, all the people they interviewed said was, gosh, they couldn't eat out every night now, they had to eat at home a few times a week. The horror!

cpi going up - it happens, and it also sucks. But again, people don't seem to be behaving much differently. If people ended up being able to buy fewer consumer goods they didn't need, I think society would survive. My apologies to the guys that make GPS systems.

infrastructure moved out - been happening for awhile. We'll replace with newer industries that are cleaner anyway. Again, short-term is pretty bad if you work in a factory, but the guys who used to drive horse carriages lost their jobs when we first made cars and the economy survived.

failed dollar - look up Germany after WWI or Zimbabwe a few years ago. That's failure. Right now is just an inconvenience.

failing banks - what do you mean here? Bear Stearns? Or actual banks failing? If it's the latter, I missed that, and the FDIC would handle it anyway.

We'll be fine. If you want to build a survival garden and prepare to the coming era of anarchy, be my guest. But I think the economy will be fine in the long run.
posted by SuperNova at 2:38 PM on March 22, 2008

You shouldn't worry too much.

Free economies have amazingly strong self-correction mechanisms. As nature abhors a vacuum, economies abhor idle capital and labor, and will quickly put it back to work because it will always be worth more than zero. And of course recessions are great opportunities for those who enter them with excess cash, because you get to buy that capital (example: a house) and lock in those labor costs at cheaper-than-usual rates.

Critical to the rebound is the right amount of government. Too much government, particularly government which think it is noble and at some organic odds with business, raises the cost of employing idle capital and labor either by regulating it or by subsidizing its idleness. Too little government and you have no security of private property or comfort in the enforceability of your contracts. Be wary of "Obama & co." thus as any source of solution; although the weight of hedge fund and private equity money on his balance does make one suspect he'll be less inclined to tax and regulate than some might fear / others mike like.

In terms of the overall environment, there is a vast amount of fat on the American consumer and the trimming could go on for a long time before you'd hit bone or muscle. Middle class families not too long ago were content with one car, 1500 square foot houses, cooking dinner all but one or two nights a month, and vacations each summer at the nearest national park where they slept in tents. Moreover, we have public institutions which have grown vastly huge. A protracted recession might well see resistance to taxation which could actually bring us back to the era where the average public employee was equal to or less than the average private sector employee in salary and benefits, and government head-counts similarly trimmed to (say) 1950s per-capita levels.
posted by MattD at 3:08 PM on March 22, 2008 [2 favorites]

if you're talking about credit card debt and stuff, remember that it actually goes down in real value as the dollar devalues.

If you mean the value of the dollar against foreign currencies, it makes no difference. Your debt is in domestic dollars and you pay in domestic dollars. The foreign value of the dollar doesn't change that.

If on the other hand you mean economic deflation, then the opposite is true. Debt becomes more expensive because you have to pay back later with more valuable dollars. Inflation, however, is the debtor's friend.

--failed dollar
The weakening of the dollar compared to foreign currencies is actually the only good news in the economy now. A weaker dollar means that goods the U.S. exports are cheaper for foreigners. This increases U.S. exports and creates more jobs. When the dollar is strong, it is cheaper to import goods rather than produce them domestically, which destroys jobs.
posted by JackFlash at 3:17 PM on March 22, 2008

Some of us are old enough to remember the long economic doldrums in the U.S. that lasted from the early 70s into the early 80s. Gas lines. Stagflation. Unemployment. Malaise. "WIN" buttons. Jimmy Carter wearing a sweater on TV. My family was even hoarding sugar and coffee at one point. By 1982 or so, you'd start to think that the default condition of the U.S. economy was "cruddy".

And yet, some people got through all that and wondered what the fuss was about. It hit some people harder than others, some areas harder than others.

It was still a lot worse than anything people currently in their 20s, or even early 30s, would probably remember. It was long enough ago that there were people around to spit and say "This is nothin' compared to 1931!"

(Insert obligatory "get off my lawn" comment here.)
posted by gimonca at 3:26 PM on March 22, 2008 [2 favorites]

I was there too and incredibly enough, it's true. Rather annoying, actually -- as an economic gloom&doomer, I've been expecting financial collapse for decades, now, since the gas lines of the early 1970s. And yet the big machine just keeps humming along. As I was working during the late 70s-early 80s, that recession was just something I'd read about in the newspaper; never affected me at all (in the way of, it's a downturn if you know someone who lost their job, and it's a recession when YOU lose your job).
posted by Rash at 5:05 PM on March 22, 2008

Here's my current solution:

1. Small mortgage (50% equity at current market prices) that I know I can pay, no matter what. No other debt.

2. Entire Portfolio, including retirement monies: 40% QID (Double short the NASDAQ 100), 40% ACG (ETF, mostly treasuries, 8% yield, monthy dividends), 20% conventional Stocks (various).

3. 3 month cash emergency fund (Our monthly "nut" x 3)

Can't say this will be my strategy in 60 days, but it's highly likely that I'll stay with it until something big happens.
posted by Rafaelloello at 7:37 PM on March 22, 2008 [1 favorite]

The falling dollar is pretty much the main reason oil prices are going up as much as they are right now. I live in central europe and they're about as high as they were a few months ago. (I paid 4.22PLN/l last night)
posted by jedrek at 11:06 PM on March 22, 2008

I'll join everyone in saying, don't worry. But you know, if you're afraid of all this stuff, there's also not much downside if you move somewhere where you can walk to your job with good solar exposure and a secure water supply; put in extra insulation, a garden, and maybe some solar hot water panels; and diversify your savings beyond US markets. On the other hand, there's a lot of downside if you skip grad school in favor of waiting for the apocalypse, invest thousands of dollars in semi-automatic weapons, or are constantly stressed or depressing to be around.
posted by salvia at 12:15 AM on March 23, 2008 [1 favorite]

Response by poster: Why I'm afraid of "stuff":

Out of context, the individual things seem fairly innocuous. But there's a number of conditions that are unique to this day - the investment bank situation (being outsized beyond our GDP), and the government being effectively broke. While there was a real estate balloon, equating it to "we're just going back to where we were pre-balloon" seems a bit off - because that is to say that we were doing "great" then (we weren't), and that everything else in the economy is the same now as it was (it's not).

From my perspective the big picture looks very teeter-tottery, in a historically-unique way. Everyone is busy comparing it to the "S&L Recession", this or that "recession", when possibly the conditions that exist right now may be unique.
posted by raikkohamilonso at 8:52 AM on March 23, 2008

Thanks for the additional input.

Every historical economic situation is unique. The pieces are always moving around, and the combinations are infinite. Downturns can happen quickly, and opportunities can happen just as quickly. But we are currently in a unique place in history in another way as well: never before have there been so many opportunities for success, and so much information, and so much research, and so many tools available for free at our fingertips. Anyone willing to apply himself and put the work into it can attain happiness and success. Believe in the opportunities and you will see them. Believe in looming disaster and you will see that too. The person who believes in failure is right. The person who believes in success is also right. You get to choose your own future.

Being prepared for bad times is always wise. Staying out of unnecessary debt, living within your means, being frugal, and saving money are always great things to do, in good times and bad. If you want to grow and can vegetables, go for it. You might save some money on groceries.

But there is no surer way to guarantee your own personal failure, regardless of how the economy goes, than to live in fear of "stuff." It will rob you of life, opportunity, and prosperity.

Stop it.
posted by Fuzzy Skinner at 10:23 AM on March 23, 2008

Fresh from the NYT: Resist The Impulse To Panic
posted by salvia at 6:52 PM on March 23, 2008

In fact, beyond the one I just linked, there are a several very well-written articles related to this question in the NYT.

One explains the financial problems in plain English, ("I spent a good part of the last few days calling people on Wall Street and in the government to ask one question, “Can you try to explain this to me?” When they finished, I often had a highly sophisticated follow-up question: 'Can you try again?'")
One defends the OP's assertion: ("Economic downturns and panics have occurred before, of course. Few, however, have posed such a serious threat to the entire financial system that regulators have responded as if they were confronting a potential epidemic.")
And one is ambiguous, putting the problems into perspective while still suggesting imminent short-term catastrophe for all small investors ("There is only one really weak sector: housing. But it’s coming off of roughly five years of unparalleled boom, and has always been highly cyclical. Agriculture, minerals extraction and refining, and almost all exports are startlingly strong. In other words, the real-world economy of the nation is not bad." // "As the hedge funds change the stock market into a chamber of horrors, the retirement hopes of tens of millions of Americans will be dashed, and the stock market as a place for sensible Americans to place their money for long-term growth will be destroyed. The stock market will be just a place for the sharks to eat one another....").
posted by salvia at 7:29 PM on March 23, 2008

I'm really late, I know, and this is just a superficial comparison, but Japan's economy's been in the dumps for 10+ years now. A lot of the practices that've contributed to the condition of their economy still haven't been reformed. You could arguably say their economy's "failed," but the country's still alive and kicking.
posted by edjusted at 10:38 PM on April 6, 2008

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