Cover to Cover: The Long Haul

“If America’s economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent, epochal change, the sort of upheaval that happens once in 50 years…The current slump already ranks as the longest period of sustained weakness since the Great Depression.

“That was the last time the economy staggered under as many “structural” burdens, as opposed to the familiar ‘cyclical’ problems that create temporary recessions once or twice a decade. The structural faults…represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the defense-industry contraction, the savings and loan collapse, the real estate depression, the health-care cost explosion and the runaway federal deficit…One major obstacle to efficiency remains: a runaway U.S. health-care system, whose costs are rising at the rate of more than 9% a year and today stand at $2,500 a person, more than twice the level of most of the world’s industrialized economies…

“One legacy…simply needs time to work itself out: the debt hangover. The initial stages were painful, wiping out both borrowers and lenders. Bank regulators clamped down on lenders, while borrowers either swore off the credit habit or were deemed bad risks. The result was a credit crunch that has severely hurt businesses, especially small ones. Among the 8 million such companies in the U.S., failures are running at the rate of 240 a day…

“Consumers are finally beginning to swear off the habit as well…The debt-cutting trend is bad for retail sales in the short run but bodes well for the mid-1990s. Most committed to saving are baby boomers, who want to save money for their children’s education and for retirement. ‘Debt is a dirty word for consumers now,’ says Robert McKinley, president of Ram Research Corp., which tracks credit-card use. Consumers are unlikely to change their penurious ways until they feel that their debts have reached comfortable levels and their jobs are secure. ‘Consumers are reacting very rationally to the kind of situation they are confronted with,’ says Gail Fosler, chief economist for the Conference Board, a business-research group.

“The real estate bust has added to the insecurity, since many people who urgently bought homes during the run-up…now find their equity shriveled. In July the median price of a new home in the U.S. fell 7.9%, to $115,000, from $124,900 in June. Low inflation has almost completely removed the urgency to dash out and buy a house before the price goes up.” —Time, 9.28.92

Does any of the above sound familiar? Seventeen years ago we were worried about the SAME things that are weighing us down today—debt, jobs, housing prices, retirement, etc. Based on what came after 1992, doesn’t history demonstrate that our current situation shall pass, too? I don’t mean to downplay the serious economic challenges we face, but rather wish to put into perspective that we have overcome similar challenges before, increasing the odds that we can do so again.

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