How will the country change in the long run?

on Mar 01 in Uncategorized tagged by Trevor Hicks

I’m 39 years old and this is the first serious economic downturn I’ve experienced in my adult life and this is true for people up to about 5 years older than me.  People aged 35 to 45 wield quite a bit of influence and I think our collective lack of experience with economic difficulty has helped to propel the entire nation into a very premature pushing of the panic button.

I don’t look so much for individual villains to explain the situation, I think for a variety of reasons our economy became structurally imbalanced with too much personal, institutional and government debt and and now we have to go through an adjustment period.  The financial sector and other industries will have to shrink in relative importance to the economy.  This is why I oppose so much of what the government has done, it’s increasing our national debt load and trying to preserve industries and companies whose size and even very existence are part of the problem.  That’s the thinking behind my comments that the government actions (and I lump in Bush/Paulson with Obama) we’ve seen are likely to be counterproductive.  Our economy won’t return to trend growth until we let those adjustments actually happen.

But what will return consumers back to ‘normal’ or what will be the new normal?  Grant McKracken at the Atlantic magazine has some interesting speculation about how spending patterns will change, particularly regarding on what kinds of luxuries people will spend less.  

I would add another possibility.  I think once the economy resumes a more normal path that people will resume spending on luxury consumables but will be more reluctant to max out on debt-financed luxury durables.  In other words, we’ll want to have lower house and car payments to preserve (or resume) our ability to consume, but also to leave us less exposed to the next downturn.  I expect to see upscale shopping, restaurants and tourist destinations return to prosperity, but the car manufacturers and homebuilders are getting a permanent haircut.