The Oracle of Omaha, Warren Buffett, had something
interesting to say the other day. And by
“interesting” I mean it scared the daylights out of me and anyone else within
earshot. Speaking on the state of the
economy, Buffett told CNBC:
“It’s fallen off a cliff…. Not only has the
economy slowed down a lot, but people have really changed their habits like I
haven’t seen.”
When the man widely considered to be the greatest
investor in the world says things like this, it has a tendency to be move
markets, cause panic, shift tides, etc.
But what does he mean? Have the
fundamentals of our economy really changed all that much in just a year? Are people stocking up on canned food and
ammunition? Not quite. We’re just making more frequent contributions
to the piggy bank.
Remember the rule your father taught you about
socking away 10% of your paycheck? Historically Americans have actually done
that or been pretty close. But something
strange happened starting in the 90’s and accelerated in the last 8 years. According to the Department of Commerce, the average personal
savings rate dropped down to around 1%
In some cases it actually dropped into negative territory meaning the
average American worker was spending more than they were earning. Raise your hand if you think that’s
sustainable?
Ok, silver lining time now. The changing habits
Buffett refers to is the reversal of this trend. Americans are scared and
scared people squirrel away cash. People are now saving 5% of their
income, not exactly miser territory, but still that’s a significant change in
spending in a short time span. The result is a retail sector that has to
adjust to dramatically less consumer spending.
Because it is happening suddenly, businesses are having a hard time adjusting. Were it a gradual process this kind of
increase in personal savings would simply be absorbed into natural growth
patterns. Sudden change means drastic
steps. Retailers close stores, adjust
product lines, and layoff workers. On
the other hand, it had to happen didn’t it?
Not everyone should be able to buy a flat-screen TV. No matter how cool they are, it doesn’t
change the fact that it’s not really necessary; especially when you
have to go into debt to buy it. In
short, our troubles are forcing people to shift
their attitudes towards consumerism that is unfortunately the current
foundation of our economy.
It’s important that we answer the question of how
this thinking crept into American culture because its effects echo throughout
our society. The drive for cheaper
products has killed our manufacturing base by sending it overseas where
sweatshops and non-existent environmental regulation mean cost savings. In some cases the cost savings is the result
of outright slavery. Think about that
the next time you crave a new pair of shoes before the old ones have been used
up. Back in the day other nations
respected and even feared the US due to our enormous capacity for
manufacturing. Now we don’t seem to make
much other than guns and methamphetamines (no offense to gun loving tweakers
intended.)
How did we get here? I blame Ronald
McDonald. Seriously. From the time we are born TV is a parental
replacement; and not a very good one.
Children are exposed to consumerism early on by teaching them that
buying things will make them happy.
Attention from adult role models is replaced with a smiling clown that
tells you one of his meals will make you happy.
With critical thinking underdeveloped, kids make decisions based mostly
on emotion, and those emotions are easily manipulated by that damned
clown. Obviously our tastes refine later
in life, but the clown just becomes someone else telling us how to buy our
happiness.
I’m not suggesting that the foundations of
capitalism need to be challenged, but that this mass hallucination that created
the now collapsing asset bubble has to make us reevaluate what is important to
our society. If it’s big houses with the
latest kitchen gadgets, we’re doomed to repeat our mistakes.
