Thursday, August 26, 2010

It's The (New) Economy, Stupid

I was surprised to find out that the quote in the title was from President Clinton. I had thought it came from much further back. Now it is time for a new quote...thus the title. 'It' is all about the new economy.
I am always surprised when people say that they are waiting for the economy to "get back to normal". As if the booming economy of the 1990s and early 2000s was normal. It was actually abnormal because it was built on a house of (credit) cards and other debt that, when it came time to pay the piper, people didn't have the money to actually pay thus the crashing housing market, crashing job market, and crashing other financial-related markets.
Welcome to the new economy. The new economy is:
  • based on cash, not credit. If you don't have the money to buy _____ (fill in the blank. This includes everything from a pair of designer shoes to new equipment for your business), then you can't have it. Lesson: learn how to save real cash for the things you want to buy instead of using credit.
  • based on survival of the fittest (or otherwise most useful and most talented). Forget about the union providing you a lifetime job or a degree being your entree into the world of work. These days, if you aren't the best at what you do, someone else will get the work and you won't. It's as simple as that. On a side note, not only are you competing with people just like you (middle income college graduate from a state/private university in the US) but you are competing with EVERYONE in the WORLD. Most often they are "hungrier" than you are. Lesson: no more coasting, you need to be AMAZING so act accordingly.
  • much more suited to minimalism. Do you really need six cars in the driveway? About a decade ago, I thought I did. I had earned them and I enjoyed driving them but these days, the cost of owning and maintaining them is simply not worth it. I would rather spend my money on other things that are more important to me. Lesson: scale back. You will save money/need to earn less money to support your lifestyle.
  • open to interpretation. While "normal" life may look like it was just spun around in the blender, the new economy is also offering unprecedented opportunities. Simply Google "lifestyle design" or go to AllTop and check out their lifehacks page and see what kinds of new and inventive things people are deciding to do. Sell everything and backpack around the world? People are doing it. Start a home-based business because there is so much technology that makes this possible? They are doing this too.
  • smaller and more portable. I remember the days of traveling around the world decades ago with a wallet full of traveler's checks. Now I just use my credit card at an ATM anywhere in the world and out comes my money. Ditto secretarial work. I (almost) fondly recall pecking away on a typewriter and using an entire bottle of White Out to create school and business-related reports. These days you are saved an amazing amount of time because of the computer and then, you can send your work of art via email instead of messenger to its appointed place. Everything is faster, easier, and more connected than it was just a few decades ago. Your entire life (financial and personal records, home inventory, contact list, etc) can fit on a tiny flash drive these days. Lesson: learn how to use technology to your benefit.
  • based on reality. Was it reality that middle class families in the 1990s had a 3000 square foot house, a boat, two jet skis, four cars, and that each child went to school with designer duds from head to toe? No. Because all of these items were bought with credit. The way the new economy is now is real. You will earn a real wage, based on real work, that imparts real value, and you will use your earning to buy what you really need and can afford. The economy hasn't really 'downsized' itself as much as it has 'rightsized' itself. Lesson: don't delude yourself, if you need money, you better beat the bushes for a job, if you need dinner, you better learn how to cook because you can't afford the fancy restaurant. Self sufficiency is a good thing.
  • a reminder of what's important. When you are out of work, losing your house, dropped from your health insurance, and your life is otherwise falling apart, the things that are important are made crystal clear. Family support, good friends, basic food, a roof over your head, good health...these are the things that make life good. Not a Mercedes in the drive way, keeping up with the Joneses, or showing off to your friends. Lesson: look for the important things in your life and enjoy them instead of pining away for material goods.
  • a reminder of what the government is and can do. In a few words, overreaching, and not much. That's not a good combination. According to the Constitution, the government is supposed to protect its citizens and their civil rights. Nowhere in the Constitution did I read that the government is supposed to provide food to the poor, set medical insurance policy, monitor your pension plans, and set up Fusion Centers to gather data on you. As a result, the government is very overreaching, it tries to do everything for everyone, and as a result doesn't do anything well. Lesson: again, self sufficiency is good. Holding politicians accountable is also not a bad idea.

The new economy isn't a bad thing. It is a "rightsizing" thing that is bringing us back to basics--the things that my Depression-era grandparents lived and breathed by. It is a new series of challenges that can be enjoyed if looked at in the right light. It is a new game with new rules that you need to learn and adjust to if you want to be successful and not be trampled up the stampede of change. Enjoy it.


  1. Sounds like common sense - which will work everywhere but Washington DC.
    I strongly suspect one of the reasons our THIRD FedGov health insurance plan was put on a five year pause is even the politicians have to face reality from time to time, and there's going to have to be a heluva lot of readjustment to make something like that work: Too many realistic options were overlooked!
    Look for an explosion of the "grey" market: Second hand, nearly-new goods and amazing services available only to those who pay cash, as the paid-off mortgage and credit cards replace a Cadillac or 'Benz in the driveway as the new American status symbol.

  2. In a world that seems to be panicking about the economy, this article makes the most sense and reflects my approach to the future. My husband and I lost everything in the housing crash. Being a new builder was not a good place to be. We had not been in the industry but 2 years before everything went down. We have downsized, we are almost debt free, we have learned who are our real friends and dependable, supportive family members and we are becoming more and more self sufficient. I appreciate your blog as it has helped me in many areas of my life and given me hope in the hardest time of my life. Thanks so much.

  3. In the New Economy you will also see Federal, State, and Local governments making ever increasing grabs for the working mans money in order to re-distribute their earnings to those "in need" as well as to keep their governments afloat.

    Taking money (taxes) from working people and businesses for redistribution only serves to hurt the economy since it prevents businesses from hiring as many workers, or prevents workers from purchasing as much "stuff" since their take home pay is smaller.

    For every job government "stimulus" creates, we need to measure against the harm done to businesses and workers due to the money that was taken from them to pay for the stimulus. And, of course, the government itself takes a cut of this money for administration.

    Look for the underground economy to expand drastically even as the regular economy tanks.

  4. Something had been nagging at me for the last 2 years. In losing my 3 best friends, plus my job, in a two year span, I finally figured it out. I certainly didn't need all of this stuff. I started downsizing this year and called an autioneer. Did I make a ton of money, NO, lost money, didn't care. This excess crap was out of the house and brought a tremendous sense of relief. I have no debt and am in need of nothing. Just prepping and waiting for TSTHTF. Good post, hit the nail on the head.