Category: Society

What Will They Learn?

Will consumers become cautious and restrained in response to this recession, as marketing experts fear?  Friday’s Wall Street Journal noted: “many companies now anticipate a shift in consumer behavior that persists even after jobs and growth get back closer to normal.”

The Journal quoted Jim Taylor, vice chairman of market research for the Harrison Group: “We seem to be at a cultural inflection point that we haven’t seen since World War II . . . .  People are getting used to being careful, and I don’t know how you undo that.” (See, “Spendthrift to Penny Pincher: A Vision of the New Consumer.”)

Time, of course, is what usually undoes that.  Old assumptions resume their sway in the mind, while established patterns of behavior reemerge from temporary adjustments. Personality is slow to change significantly.  Culture even slower.  There is no particular reason to think it will be very different now.

No doubt the continuing threat of unemployment has a very significant impact on consumers’ willingness to over extend themselves.  As they see friends and neighbors struggling to stay above water, that makes them cautious and anxious.  And since banks, protecting themselves, seem only willing to risk money in the search for their own investment profits, it’s not easy for consumers to borrow or small businesses to extend credit to their customers.

But, by and large, its fair to assume that consumers are waiting to resume the life they knew, to “get back closer to normal.”  But what is “normal”?

In my last post I quoted Newsweek’s prediction that unemployment will stay “as much as 7 or 8 percent even into 2014,” adding George Soros’s comment:  “The average American will not be better off in five years.”  Three out of seven have had their pay cut in last year. (See, December 17, “Economic Man – Unemployed”)  That will crimp the style of many consumers.

So there is likely to be a significant wait until “normal” resumes.  The question I think that market researchers are really asking is will the credit mania resume?  Will consumers be willing to borrow once borrowing becomes an option again?  Will they take out mortgages and home equity loans once they become available? Will they go as deeply into debt as before?  Most likely that will depend on what all other consumers do.

The real question is will cheap money become available again?  Will the government encourage home ownership?  Will the Fed keep interest rates low?  Will banks compete to underwrite the consumer?  I imagine that Mr. Taylor hopes so, as do others in marketing and sales.  They are eager to restart the engine of consumption.

Much as we need robust consumption to fuel the economy, would that be smart?  Or will we begin another cycle, another boom that will end in another bust?

A Hidden Epidemic of Emotional Problems

Economists like to think about the average U.S. citizen who studies the market, has 2.3 children, earns $28,000, and is married 1.9 times.  A recent poll by The New York Times adds some statistics to this construct in an age of unemployment. (See, “Poll Reveals the Trauma of Joblessness.”)

“More than half of the nation’s unemployed workers have borrowed money from friends or relatives since losing their jobs. An equal number have cut back on doctor visits or medical treatments because they are out of work. A quarter of those polled said they had either lost their home or been threatened with foreclosure or eviction.”

The poll also put some flesh and blood — and emotional consequences – to these facts, exploring the psychological impact of unemployment. “Almost half said they had more conflicts or arguments with family members and friends; 55 percent have suffered from insomnia. Almost half have suffered from depression or anxiety.  Forty percent of parents have noticed behavioral changes in their children that they attribute to their difficulties in finding work.”

One mother reported: “Every time I think about money, I shut down because there is none . . . . I get major panic attacks. I just don’t know what we’re going to do.”

Nearly half of the adults surveyed admitted to feeling embarrassed or ashamed as a result of being out of work. Not surprisingly, given men’s traditional roll of breadwinner, they were significantly more likely than women to report feeling ashamed most of the time.

Nearly half of those polled said they felt in danger of falling out of their social class, with those out of work six months or more feeling especially vulnerable. Working-class respondents felt at risk in the greatest numbers. (See my December 12^th posting, “Middle Class America?”)

Those still employed have not escaped the toll. “According to a New York Times/CBS News nationwide poll conducted at the same time as the poll of unemployed adults, about 3 in 10 people said that in the past year, as a result of bad economic conditions, their pay had been cut.”

What we don’t know we know about unemployment are the emotional costs hidden behind the statistics.  The anxiety, depression, anger, shame and dread that afflicts those who have lost their jobs, or even a significant portion of their income.

And as it seems unlikely that the picture will change significantly for a long time.  Newsweek predicted this week that “U.S. unemployment is likely to remain high for years to come, as much as 7 or 8 percent even into 2014.” And it cited George Soros:  “The average American will not be better off in five years—unemployment will remain high and wage growth will continue to be flat.”  (See, “Joblessness is Here to Stay.”)

We are likely to have statistics on that, however imperfectly they reflect the true facts.  But we are seriously at risk of neglecting the epidemic of mental health problems that will accompany those facts.

. . . And They Can’t Change

The public now is stuck with immense debt from last year’s credit meltdown – not to mention a ten percent jobless rate – but the financial companies that brought it about seem to have little interest in reform – or, even, in helping along the recovery.  That shouldn’t be surprising.

Goldman Sach’s new compensation plan has gotten a lot of attention and praise in the press, but that seems to have been the point.  A close look suggests that it is more of a shell game than true reform.  As Nomi Prins writes in The Daily Beast: “Once again, Goldman is attempting to spin nothing of consequence into something of meaning.” (See, “Goldman’s Bogus Bonus Ploy.”)

The main feature of their plan is that stock in the firm will be given rather than cash.  Since the stock vests in five years, it seems to answer critics who have noted that short-term gains are being rewarded with cash bonuses before the long- term effects are seen.  Moreover, they have a “claw back” provision that allows them to reclaim some or all of the bonuses in the case of “improper risk.”

But the fine print reveals clearly that the plan is for this year only, and that much of the money they will hold back this year could be distributed a year from now when, perhaps, public outcry will have died down.  Then stock may easily end up being worth more than today’s cash.  Moreover, there is no tax to pay on stock options, a nice way of stepping around what governments in France and the U.K. have proposed in taxing bonuses.

We have some difficulty in grasping that financial firms like Goldman Sachs have no incentive to reform so long as they see the opportunity to make money.  Similarly the bank presidents that met with the President on Monday have no incentive to be more generous in extending loans to small business and individuals.  They are driven by profit, their profit – that’s our system.

What we have to take into account is that it’s not about not wanting to serve the public.  Taking risks with money is what they do.  That’s what they hire people to do.  That’s what they are designed to do.  That’s what their competitors do.  And that’s what their stakeholders expect them to do.  Without external the force of regulation or legislation, they can’t do otherwise.

No amount of public relations or spin, no wishful thinking or even good intentions, can move them off that dime.

How Long Will It Last?

One of the great myths about America is that we are a middle class society.  That is, most of us fit between the extremes of wealth and poverty.

This myth may have originated with the fact that, unlike Europe – and the rest of the world, for that matter – we started out with no aristocracy or serfs. That lack of inherited privilege or servitude has linked to several other ideas about ourselves we also hold dear, that we are a land of opportunity and equality.

Elizabeth Warren, Chair of the Congressional Oversight Panel and Harvard law professor, has recently speculated about “America Without a Middle Class.” (See Huffington Post)  Incisively describing the economic decline of middle class families, she makes the following points:

One in five Americans is unemployed, underemployed or just plain out of work.

One in nine families can’t make the minimum payment on their credit cards.

One in eight mortgages is in default or foreclosure.

More than 120,000 families are filing for bankruptcy every month.

The economic crisis has wiped more than $5 trillion from pensions and savings.

These facts are forcing us to rethink our myths, particularly as they are paralleled by the enormous growth of wealth at the other end of the scale.  As the middle class erodes, we are becoming a divided country of rich and poor.

But class is not just about wealth.  It’s also about identity and status.  We are familiar with some upper class families who have become destitute but salvaged their pride and self-respect.  Conversely, many have risen to great wealth but held on to their middle class life-styles.  Warren Buffet is perhaps our best example of that.

So we are facing a wrenching disconnect between economic and psychological reality.  The media focus, of course, is on the facts of the economy, but this increasing identity gap is likely to provoke a host of emotional consequences for those who have been displaced: embarrassment and shame at being exposed as not who you thought you were, humiliation for the loss of status, depression for the failure for feel yourself to be, and anger at those who caused it to happen.

But we are also in danger of losing a key element of national identity.  Unequal, without opportunity, with rigid new class boundaries, there will be nothing special about us, nothing that sets us apart except our financial power and military force.

Arguably, our myths have been illusions all along, but they have been a key element in our national identity.  And they have kept us from bitterly fighting among ourselves.

There is a lot of inertia in national identity.  It takes a long time for it to change.  But without a foundation in reality, it can’t last forever.

What Are Celebrities For?

Tiger Woods’ predicament has gotten many of us to think again about why men have affairs.  Working in a highly competitive environment seems to be one of the reasons.

According to Reuters, a recent study of extra-marital affairs among London bankers provided the following explanations:  “public revulsion for bankers combined with a lack of affection in private was the top reason for having an affair, followed closely by the excitement of doing something risky, escaping boredom, feeding the ego and one-upping the boys with a trophy mistress.” (See, “Bankers Having More Affairs in Recession.”)

Obviously, Tiger Woods’ celebrity certainly did make him attractive to many women.  Perhaps he succumbed to temptation because the affirmation they provided was irresistible.  Famous athletes, rock stars, and Hollywood actors seem to have no trouble arousing such attention. Bankers, on the other hand, are used to paying for it, and even seem to enjoy using their money to get what they want.  Either way, attention is a powerful aphrodisiac.

What about the other factors, such as doing something risky?  As every tournament involves the risk of losing, it’s not likely that Tiger Woods needed more risk in his life.  But it might be true that he was used to living with risk and, perhaps, craved more than he had – and different kinds of risk as well.  This is linked to boredom, of course, as risk lends excitement to life.  Conquest and success also feed the ego, and add a thrill — together with a boost to self-esteem.

Finally, the London bankers were “one-upping” each other with their trophy catches.  That suggests they knew about each other’s affairs, in principle if not in detail;  only the wives were in the dark.

As we go down the list of reasons, it becomes more and more clear that this is essentially about competition:  craving the excitement of the chase, beating out others, getting more than your fair share of attention – and all of this in an arena with others watching.

Famous athletes lead abnormal lives, constantly performing while seeking more achievement and recognition.  In this they are like other celebrities, actors, models and politicians.  For them, what matters are the things that lead to their success and notoriety.  On the other hand, those things matter so much more than anything else.  It would take exceptional determination to resist that pull, and an unusual person to tolerate the boredom, loneliness and frustration that are essential parts of most normal lives.

The truly strange thing here, though, is not the lives they lead, but the fact that while we spur them on, relentlessly following them in the media, we also blame them if they fail to be decent citizens and role models.  We encourage this deformation of character and then celebrate their failures with a certain amount of shadenfreude.

Could it be that the complete trajectories of these careers make a kind of sense, from fame to infamy?  Perhaps what we don’t know we know is that they are supposed to suffer and fail for having enjoyed a different life, one beyond our reach.