The Other Shoe is a EEE Size for President Obama

A first shoe dropped tonight in America on President Obama with the sea change in the political environment as the House of Representatives majority moved to the GOP. Now the question is how to fill the other shoe so that is does not drop again in 2012. If I was the President I would be staring at the EEE shoe in front of me and ensure that I do nothing else over the next two years but focus on just that one shoe. The EEE size shoe is:

E = Economy
E = Education
E = Energy.

If the President could focus his staff, his party and those across the aisle on just ensuring that he can fill this large shoe over the next two years then I believe he has a chance to be reelected. If he and the administration waiver and confuse the topical and noisy for important, then we may watch in November of 2012 as to what happens with the other shoe. No one will argue about any of the EEE initiatives and certainly if the EEE's improve and then get better and better, then the President will be known as one who can fill a big shoe and that will allow Americans to give him four more years to show that yes, he can.

“Recession” or a “Compression”?

One of the first things I ever learned about taking care of myself or someone else in a medical emergency was to apply pressure and try to compress the wound. I remember hearing as a kid growing up for all kinds of hurts, “put a compress on it”. Lately, I have been thinking that this is exactly what is happening in our economic situation. While the government is trying to get its act together on what it should do, we, the American consumers, are taking the only action we know to do when something is hemorrhaging. That is, to compress the wound. It is what we are doing with locking down our spending, sewing our pockets shut on investments, and pushing down hard on anything that seems frivolous or not necessary. And we are very, very afraid to take the pressure off for fear that the spurting will start all over again and we certainly can’t afford to lose any more of anything. So, I would put forward that we are in a Compression and that unless the government comes out and starts talking to each of us on how to manage during these times of uncertainty that we will not take the pressure off and consumer spending will continue to wither. When we said we were in a Recession, the powers to be failed to give us our instructions on how to manage through a Recession. Left to our own devices and thinking we are all only doing what we know and falling back on the little we know on how to manage. I don’t know about you, but I would be glad to see a First-Aid kit as soon as possible because I don’t like this pressured feeling and I wonder what happens if I keep this pressure on like this too long. I seem to remember something about too much pressure too long on a wound that doesn’t want to heal on its own will get worse and worse without blood flow. The similarities are just too frightening for me.

A response from Jim H

I received this note from Jim H and thought it worth sharing:

I took special note of our thoughts on the economy, especially the "Disposable Nation" and the "Greater than 11,000 and less than $3" articles. I've always considered myself somewhat of a closet economist, I took several economics classes while in MBA school, so I try and pay attention to these things. There are a few paradoxes in the current economy, you touch on a few. One is the recession/not-recession topic. All the economic indicators we've used for 100 years say not-recession, yet the vast majority of Americans (including me) say yes-recession. I think that as a nation we have become much more economically aware in the last 30 or so years and we see it coming. I think this explains the paradox, we are not technically in a recession today but we expect that we will be. Thus the opinion of the American public is - obviously - a forward indicator. It is a self-fulfilling indicator as well. As an economist then, I would say that "all things remaining the same" then we will soon be in a recession of the classical sense. Unless something changes, and that something may be energy costs. People said we were in a recession when they saw $4 gas going to $5. Now we are at $3 gas going to ... who knows? I've believed that what set us off economically was the double whammy of the housing collapse and energy costs. I think our economy is very resilient for many reasons, and no single thing can really set it back. It took the two punches to knock it back. If we are at bottom on the housing crisis (questionable) and if energy has stabilized, maybe people will sense a turn and we will change the mass-psychological-forward-indicator.

This may not be enough to overcome the don't-spend mentality that has gripped us all. The paradox here is that what is good for us financially as individuals is bad for us collectively as an economy. Spending drives the economy, and durable goods replacement is a big part of it. We've stopped outfitting our homes, and stopped buying cars. That's the bulk of it. We can't buy enough clothes, lattes, or iPhones to make up for that. I worry that this trend - both economically and socially driven - could ultimately be a devastating structural change to our economy and standard of living. We as Americans spend a lot, most folks in other western nations have decried this over the last few decades, we've been somewhat demonized for our consumption. But that's an old story, I've heard it since I was a kid, and by and large the American standard of living continues to outstrip the rest of the world. I see a totally different psyche in the UK where my wife's family is from. We go visit them often, I've spent probably two months there in the last three or four years. Her relatives are considered UK middle class, but here they would be struggling-lower-middle class. They don't buy things on a whim. A couple of years ago while on a visit my wife bought her grandmother a new TV. She was surprised at the reaction from the family - it was a huge deal. They just don't consume like we do because they have a perception - mostly correctly - that their financial and economic status is locked and won't change over the coming year or the coming decade or their working lives. The upward social mobility isn't part of their core cultural belief. On the other hand, we as Americans are confident that we will do better next year and next decade, and that gives us a comfort level in spending. The spending drives the economy which drives the upward mobility. In essence, I believe that our core beliefs as Americans drive the upward spiral. Most European countries are stuck in a slow downward spiral. I would hate to see a confluence of events here in the US that could disrupt our upward spiral.

Screeching Halt

I wondered when it would happen. I listened carefully and watched with a close eye. I monitored my own feelings and actions to see when it would happen to me. I think it happened last Friday. Last Friday after the Bailout Bill was signed and the market said, "thanks, but not good enough". And then it was reinforced yesterday when the picture was taken of the Big Board with the Dow being down 800 points. I heard it then. It was a slow building sound but as the pressure increased on the brakes the tires started to seize and as they did the friction on the road reached the breaking point and the screeching sound started. The screeching sound is the stop of spending. Since last Friday it is all anyone has talked about. It's in every conversation about how they have "quit spending", have put themselves "on a moratorium", "locked up the credit cards", etc. And the interesting thing is that once it would have been awkward or maybe even a little shameful to say, "I really can't afford that right now", now it is almost with a bit of pride that I heard a woman in a conversation say yesterday, "it's just not right to be spending now like I usually do". I shouldn't be surprised because I feel it too. I am waiting for the set of envelopes that come in at the end of each quarter. None of them will be opened with any expectation other than they carry numbers in the red which is bad news. I am stitching closed my pants pockets as I write this. A friend of Patti's who worked for over 30 years and retired from the same company, got the call from her financial planner yesterday telling her that she may want to start looking for a part-time job and if the market slide continues, to plan on going back to work full-time. In the meantime, she was told, stop all but necessary spending. And the screeching continues. What will this do to the economy that just 90 days ago was wanting to feel the effects of a spending stimulus? It seems that whatever turn or action that is taken has a bad side-effect. In the meantime, it appears the prudent thing to do is to keep the pressure on the spending brakes and put up with the screeching noise. One of these days we will be able to afford anti-skid spending brakes but for now, let 'em screech.

Disposable Nation

Twice this last week I have heard younger people say something very interesting. Each mentioned, in different contexts, the idea that buying something new was a bad thing. One said this in the course of talking about managing of their finances and how they are cutting back. The other person said it in the context of the "greening" of the world. He went as far as to say that in the neighborhood he lives in that it's just not "cool" to buy or drive a new car anymore. I have sat with this for a few days and wondered what it means to our economy if we were to broadly adopt this philosophy. We the country where durable goods (like cars) get traded in for new ones well before they expire. It is, to use Senator Obama's words, "well above my pay grade" to understand this, but in my naivete, I would say that if we were to move away from our current disposable attitude (about just about everything) it might be good for mother earth, but our economy would certainly stall. This whole thing has me thinking and even starting my own little revolution. I found myself wanting to walk out of Peets yesterday with my large cup and put it in my car to bring back in the next time. I looked in my closet and said, I can wear those clothes another year, even though the style has changed slightly. I talked to my buddy and said, "why buy a new car, get a used one, you will save a few bucks and won't chew up some more of that carbon footprint stuff". Hmmm, those kids might be onto something, again. I don't know what it means in the long run, but I can tell you that it's not that hard to start thinking this way and I can certainly see why many will. I hope the economists have this in one of their models.