Generational Change Hits Home

Something about visiting the locale of one’s youth gets you thinking about things that change over the course of a lifetime. So it was during the week+ we just spent in and around Seattle. It’s always a bit of an effort to square current impressions with memories that probably age more like butter than cheese. When I stop to consider that the time between when I got my driver’s license and today is the same as that between then and 1929, how surprised can I be that so much has changed as much as it has? Back then, a ride on the bus had only recently risen from $0.20 (now $2.50, unless you are among the entitled legions who qualify for a subsidized pass, yet another bit of stealth redistribution which belie the “poverty level” statistics), gasoline as low as $0.26 a gallon. Boeing is no longer the dominant employer it was then, even if it presence and that of the myriad companies that support it is vastly larger. Microsoft, Amazon, Starbucks, Expeditors International and the entire biomedical industry were, at most, just germs of ideas in the minds of a few individuals yet to be heard from. The Pacific Rim was more a geological phenomenon than the vast web of economic interdependence and cultural melding that it has become (a New, better-thought-out-than-the-first-attempt, Greater East Asia Co-Prosperity Sphere?).

It is quite possible that Seattle’s place as a key node in that Pacific Rim economy accounts for what seemed like an economy doing a lot better than I expected. Along with the constant reminders we get that the Western world is teetering on the brink of recession, my expectations were tempered by the prolonged speculative excess in real estate in that region that should have set the stage for a longer than average recovery. The downturn that commenced in 2007 certainly registered in terms of business failures, foreclosures and unemployment, but all that seems to have slipped into the past. The places I visited were not overrun with “House For Sale” signs, in fact one on one rather long walk through neighborhoods overlooking Puget Sound I only saw five such signs, and four of them were “Sold”. Perhaps most of the would be sellers gave up, or the Chinese are buying them, but it sure didn’t look like the aftermath of the bust that was 2008.

Even more striking was a Friday evening visit to downtown of a district known as Ballard, a trendy nightlife destination that a couple of decades ago was as genuinely down and dirty, blue collar industrial as they get. At about the fifth restaurant where we were told that the wait time would be at least an hour and a half for a table for two, I was starting to get those “This is some recession we are having!” thoughts. Once we finally found a place that could seat us right away (at a bench overlooking a patio), I was struck by just how lavishly a mostly younger crowd seemed to be able to amuse themselves. A dozen or so years ago on a similar trip, I was bemused by a hallmark of spendthrift culture I chronicled as “$4 micro-brews”. That (now perfectly normal seeming) marker has evolved into $9 cocktails, which were being consumed along with a plethora of a la carte items all but certain to push the tab into three digits in no time at all. I was also assured by my guest that it is crowded like that most other evenings as well. I went to sleep thinking, sure, there may be something exceptional to account for what seemed like surprising prosperity in this little corner of the world, but even with that said, how shaky can the economy be with so many people out spending like that?

That further reflection that sometimes accompanies a night’s sleep brought me to a somewhat less sanguine conclusion. I couldn’t help wondering if what seemed like indications of prosperity were actually indications of cluelessness. Perhaps despite that terrifying moment of reckoning we went through a couple of years back, there are still large numbers among the up and coming generation that haven’t figured out that they are going to have to save a lot more of their incomes than their parents did. If so, then what was going to be a long, slow economic recovery in any case is going to be very long and slow indeed. Recessions are supposed to be reality checks, catalysts for prudence, temperance and sundry other virtues that tend to undergird prosperity as opposed to decline. We no doubt got a good whiff of that, but I can’t help wondering if, much like that uplift in comity and civic mindedness that followed 9/11/01, it has faded away. Probably not absolutely and across the board, but also probably more so than is conducive to a true and lasting national recovery.

The taproot of this somewhat counter intuitive stance is probably rooted in something that occurred to me at least 25 years ago. That was the observation that other countries, notably Japan and Germany, seemed to be catching up with us, and that many investors were terribly alarmed by this. It was true enough, but it had festered into confusion between relative and absolute position. Fixing on 1945 as a reference point, it seemed pretty obvious that other countries growing faster and so seemingly “catching up with us” was the most natural thing in the world. If one economy starts out bombed halfway to the Stone Age but is even remotely well-led, and the other has the only intact industrial base in the world and, over time, the hubris that goes with that, of course the former is going to grow faster.

Unfortunately, those advantages, the ease with which Americans could obtain the spending power to, in effect, bid against the rest of the world for goods and services (e.g., a union job at an enterprise with few if any competitors, something that in recent years has only existed in the public sector.) came to be thought of as perfectly natural and normal. The absolute level of prosperity has risen amazingly for nearly all of us (outside those benighted regions where autocrats and thugs do their best to discourage the impulses that drive prosperity). With the passage of a half century or so, though, the relative position, those advantages enjoyed by Americans and Europeans that were so conspicuous until well into the Seventies and still very large a decade ago, seem to be withering away at a faster clip. And not just withering. They took a huge haircut during the asset deflation that commenced in earnest in 2007. As with any other enterprise, the dysfunction, the dry rot, the ill-considered ideas that accrue in an economy during eras of scarcely interrupted prosperity don’t seem to matter at all until one day there is a tipping point and they are all that matters. Let’s put the collapse of Lehman Brothers at the epicenter of that tipping point and say that what should have been a wake-up call has had three years to wear off.

It appears more than remotely possible that however obvious that wake up call was for some of us, a plurality of the electorate might have further to go in realizing the true gravity of the situation. (Send a message of discontent like we just saw in NY special election? “Absolutely!” Accept the tough decisions that leaders will have to make without whining, complaining and threatening to vote the bum out of office? “Not if it puts my “rights” at risk!”) Having lived through the Seventies, I don’t see the US economy as beyond cure. They fixed that mess, and this mess is probably still fixable as well, but not without the realization that we can no longer afford to be as profligate (i.e, need to spend less and so a lot smarter) as the great prosperity of the past sixty years made so easy. Hopefully I have taken a tiny, atypical sample and misjudged the mood of a nation. Hopefully the vibrancy I keep seeing that belies doomsayers’ lament that the economy is stalling out is not being fueled by little more than rounds of $9 mojitos being piled onto credit cards. But as long as that’s a not bad metaphor for how the US economy functions (i.e., generously seeing to it that your friends have a good time with no thought as to when it will be paid for), the seriousness we need to undergo a necessary cure just might not be there. As we suffer through the discomfort of having watch wobbles in the the price of PIGS nation bank debt (which is easy enough for a pack of hedge funds to set to wobbling, by the way) swing the market cap of our economy by a major fraction of a $Trillion in a seeming blink of an eye, we should bear in mind that meaningful change also plays out on a wavelength that is generational and beyond.