Less Vigorous Consumers

It is not news that the economy of the United States, irrespective of an upward blip in the gross domestic product in the third quarter of this year, is not doing well. The country has seen huge declines on its citizens personal balance sheets due to falling prices for stocks and real estate. Unemployment is abnormally high. The federal deficit is ballooning. The fed is inflating the currency at a dangerous rate as the dollar declines in value against gold and other currencies. Financial institutions are weak and plagued by bad and non-performing loans. On top of all that we have the most anti-growth and anti-business government since the 1970’s. Its current proposals include plans to increases taxes and regulations, punish people for using energy, and impose various costly mandates onto the members of the real economy while expanding the size and cost of government.

These are real and serious problems that will have deleterious effects on the growth of the economy for some time. However there is another factor, not often noticed, that I think will have at least some dampening effect on economic growth as measured by GDP, and thus probably on equity markets and on tax collections. That is the trend for more people to do more things for themselves outside of the counted, measured, and taxed economy.

My wife and I are an example. We have been semi-retired for three years. Before retirement we had fairly demanding full time jobs. Now we work at writing and do a little part time teaching, but a lot of our time is free. We have been using some of that new free time to do more things for ourselves that we might have hired done when we were busier and making more money.
When the exterior of our house needed painting a while back, I did it myself. The total GDP-impacting cost of the project was around a hundred dollars for paint. Before retirement, I might have used a painting contractor instead and paid him somewhere between two and four thousand dollars for the job. Our outcome – a repainted house- would have been the same, but the impact on GDP would have been quite different. My wife has stained or painted several cabinets and doors around our house in the last couple of years. She would probably have had someone do it if she had still been working full time. Again the result for us was the same, but instead of adding several thousand dollars to the GDP, she spent a couple or three hundred on materials. There are plenty of other examples – painting interiors, removing dead trees, roofing a storage shed, remodeling a half bath, growing a vegetable garden, doing some electrical wiring, cooking more while going to restaurants less, building walkways, and so on – where we are now doing more things ourselves, bringing us significant value but not doing much at all for the measured economy.

I think it is likely that more people will be behaving in a similar way in the next few years, partly because of the large number of boomers moving into retirement and partly as a reaction to the recent financial crisis. I have also noticed that, on average, people become less concerned about status and trendiness as they age and thus less likely to spend lots of money pursuing current fashion. Then there is the simple fact that many people, by the time they reach the age of retirement, already have a large fraction of the things they want. It seems to add up to boomers perhaps becoming far less vigorous consumers than they have been in the past.

Taxing Ourselves

I read an article a while back praising Seattle for being such a fine, progressive place where the citizens are willing to tax themselves for all sorts of civic improvements and “green” causes. Our city about to have a bond election, and I expect to hear local boosters talking about the need to tax ourselves for benefit of the community. Such talk is commonplace.

However it is completely wrong. People who vote for tax increases are not voting to tax themselves. If that were what they were doing, an election would be superfluous. All that would be needed would be a sign-up day where each person wishing to tax himself would be able to make a binding subscription of the amount he was to be assessed under the proposed tax. No, the purpose of such elections is not for people to vote to tax themselves, but for them to vote to tax their neighbors who disagree with them. It is a means for members of a group of people who want something to push some of the cost of achieving their desire onto unwilling people with other priorities by force. Fine talk of democracy and the will of the people notwithstanding, it is stealing, carefully masked and dolled up stealing to be sure, but still stealing.

Just as anyone who eats meat should be willing to kill the animal if necessary, anyone voting for a new or increased tax should be willing to shake his neighbors down at gunpoint to collect it, if necessary. That should set a high standard for bond and tax elections, one that few proposals will meet.

Time to Leave?

It was reported last week that Jim Rogers is bullish on gold and skeptical of the economy of the United States in general and of the dollar in particular. He is said to believe that the bull market in commodities has a while yet to run. He may be right on all counts.

If he is right on commodities, it is more trouble for the United States, since our taxes, regulations, and "green" policies make it harder and harder to increase the production of commodities of all sorts in this country. (Imagine what it might take to get our civil servants’ permission to open a new lead mine in the US. The feds are even working to make it harder to produce agricultural commodities. ) As commodities become more valuable, and as we disdain to allow their production in this country, we become poorer.

I likewise share his (and many other people’s) concerns about the dollar. It seems likely that the huge increases in the money supply, abetted by the massive federal deficits, will produce significant price inflation. Indeed the deficits give the government a real incentive to inflate to partially repudiate its debt. In general, under both Bush and Obama, the government has been a disaster, and things appear to be getting worse.

I also agree that there are real problems with our culture with far too many lacking prudence, self-discipline, responsibility, self-respect, a “work ethic”, and even basic human skills and decency. There is plenty of reason for pessimism.

However I worry about Mr. Rogers’ solution of moving to Singapore and about the plans or hopes of others to avoid the mess in the United States by becoming expatriates. If this country rights itself in the next few years (and I think it will to a tolerable degree), there will have been no need to leave. If it does not, but rather continues to decline, I would think that a person wouldn't want to be an expatriate American in Singapore or Taiwan or anywhere else in east Asia on the day the United States Navy stops guaranteeing the security of the Pacific. Things may get pretty rough here, but they could be much worse there.

When Europe collapsed into war, tyranny, and decline under the Communists and the Nazis, many Europeans sought refuge in the United States. Later, Cubans and Vietnamese did the same thing. For all their sorrows, these refugees were lucky in one important way. They had someplace to go. The sad fact is that we may not. It is hard to see how Singapore or Australia or New Zealand or Costa Rica or any other place I can think of will be safe or pleasant for long if the United States declines into insignificance. The best option, even if things get really bad, may be to stay here and struggle to set things right here.

I know that there are other possibilities besides recovery and deep decline. For instance the United Stated could remain the dominant military power while progressively becoming a less free and less pleasant place to live and work. In that case becoming an expatriate might work well. However, if I were such an expatriate and were either young or a parent, I would question whether that condition was stable for the long term. I would stay alert and light on my feet. Of course it may be that the easy times are over for a while, and we all need to stay alert and light on our feet, no matter where we live.