Bubbles and Busts

Are we heading for another boom and bust cycle? Will home prices soar to unsustainable heights and then collapse like they did 10 years ago? Will the stock market rise continue or moderate for a while? Or will it continue to rise without supporting data? The latter seems most likely. And if true, a bust is certain to follow. It is only a matter of when. These cycles vary only in frequency and severity.

Jobs and hiring the same. Wages and salaries have been stagnant for 8 years. Very little rise. In fact, people leaving one career – being phased out, downsized, or plant closed – find they cannot regain the same wage or salary level in a new job or career. It is like they are starting all over as they did when they were in their 20’s. From a $75,000 annual income to one totaling $24,000 a year. Not fun. Not livable. Not fair. Think of the folks making $150,000 per year now working for $55,000.

Taxes going down in the most recent congressional effort? Not sure yet. Too many loose ends to tie up. Even then, the details are lost in the 800-page document; there is no time to study or calculate the effects on many tax payers and interest groups. The fear is higher taxes on the lowest incomes; lower taxes on the highest income earners; and massive tax reductions for corporations. The latter already have so many loopholes they pay minimal taxes. In fact, most don’t pay their fair share of education, cultural or infrastructure costs they benefit from. One day this will be studied and accurate calculations made as to the imbalance between corporate taxes paid versus benefits received. I suspect individual taxpayers will be shocked to learn how much they pay to subsidize large employers.

The point of my comments today is not to point fingers. Rather, it is to suggest economic policy is a tough subject to master and wield in the circles of government. Politicians have the authority to set and approve policy; most often they do not understand the very thing they are deciding. Professional staff do understand these matters; it is the stuff of their careers that they studied and prepared for. There are economists who do understand their field. Although asked for advice, often those words of expertise are ignored in favor of political outcomes. The wrong decisions for the wrong outcomes.

This goes on for decades. One party repairs the damage and the other party returns the damaging policies at their earliest opportunity.

The early 2000’s witnessed a setup for economic damage. The Recession of 2007-08 was avoidable and many made their opinions known at the time. Later, when the global financial system was in dire threat of collapse, people began to understand better the problems we had inflicted on ourselves and our global partner. Make no mistake, the global recession was caused by American greed and economic mismanagement. And yet incalculable wealth was shifted from one sector of our people to another. The greedy got theirs. The rest of us paid dearly.

Those mistakes were made with intention by those seeking desired political outcomes. The enormous price tag for this debacle is still being paid. Had those decisions not been made, our economy and social structures would have had a much stronger base to work from on solving the massive career dislocations of technology induced change. These changes affected not only our jobs, but changed industries and corporate life even more. Many companies went out of business. Some were long overdue for such; they didn’t plan far enough into the future to realize their inevitable fate. Worse, loyal careerists went along for the ride and didn’t know they were heading for a dead end.

The dead end happened just the same. And millions of hard working, loyal professionals lost their jobs, careers and self-respect. Career shifts are now needed to salvage the talent and inventiveness of these good people. To do that, programs must be engineered to deal with the complicated changes needed to educate and train a new cadre of mature workers. A further problem? Many of the new careers are not yet fully understood.

Think of the retail industry in 2017. It is changing fundamentally to an electronic process. Stores and shops – and shopping malls – are fading away. Will they disappear entirely? Probably not, just different in scale and design, and function. On-line shopping and individual delivery of purchases will take the place of malls and permanent commercial real estate. A new normal will form, and it too, will morph into different shapes, scales and functions in the future.

Change will occur. Change is constant in its being; its rate varies to make it more challenging! But change is always with us. We need to live with this and prepare for it.

The price of change is boom and bust cycles. Economic policy softens the effects of the cycles. Our public servants need to be trusted to do this job well, free of political interference. Maybe the next cycle is political reform? Well, we've heard that before and it never seems to come.

November 24, 2017