6/11/2012 7:51 PM ET|
How the Great Recession changed us
The Great Depression shaped the views of its generation, and the current prolonged US downturn is shaping ours. Here are the 3 biggest worries going forward.
Has the Great Recession been long enough and painful enough to change behavior in the ways the Great Depression did?
I think the answer is yes -- in some ways that are obvious and others that are much less so. One of the least obvious changes is also the most ominous, because it has the potential to depress economic growth in the United States and the world's other developed economies over the next decade, when growth will be already in scarce supply.
Refugees from risk
The Great Depression was long enough in the United States -- from 1929 to World War II -- and painful enough -- 25% unemployment -- to change the behavior of all who lived through it.
I think we all know what the lessons of the Great Depression were. My parents, for example, one born in 1917 and the other in 1920, were extremely debt-averse -- a reflection, I think, of watching my grandparents almost lose their house in the 1930s when they couldn't pay their $3,000 mortgage. At the height of my parents' financial recklessness, they had two credit cards: a gasoline credit card they carried when our family took a cross-country car trip in 1965 and a Sears credit card that my Dad used to indulge his love for riding lawn mowers.
They saved so they could send their two sons to college without borrowing. My Dad worked at the same company from the time he was 17 years old until he retired -- at least partially, he told me once, in reaction to his experience of finishing school and not being able to find any job. They inherited some shares of ExxonMobil (XOM) from my grandfather, who worked there, but on their own they never bought a financial asset riskier than a certificate of deposit or a savings bond. Yet they managed to live comfortably in retirement and to leave a respectable estate to my brother and myself.
What I call the Great Recession began in December 2007, according to the National Bureau of Economic Research, and it feels like it is still in effect, even if the U.S. economy is growing again. It isn't nearly as long (so far) or as deep as the Great Depression. The official unemployment rate peaked at 10.1% in October 2009, compared with a peak rate of around 25% during the Depression. (The Great Recession has been much deeper in some European economies. In Spain, for example, the official unemployment rate hit 24.4% in April.)
The Economic Cycle Research Institute is still predicting that the U.S. economy will slide back into recession in 2012. But even if we're not officially in a recession at the moment, the downturn has already been long enough and painful enough here that I think it's worth asking if the Great Recession has produced any lasting changes in behavior like those that resulted from the Great Depression.
3 post-recession worries
I'd break down the changes produced by the Great Recession into three broad groups. The first change, the most obvious and easiest for investors to adapt to, is in consumer purchasing. The second, also reasonably obvious, is in views about work and the nature of a career. The third, most powerful in its effects and the least obvious, is the way the Great Recession has undermined existing belief in financial security. That decline in real and perceived security is likely to change where people put their money and what level of returns they think they can count on -- and, therefore, how much money they think they can spend and how much they feel they have to put away.
That last change is likely to powerfully depress consumer spending for at least a decade, I'd argue, just as the world's developed economies are most in need of every tenth of a percentage point of growth they can get.
1. We're more frugal
Let's start with consumer purchasing.
As you might expect, the Great Recession has made consumers much more price-conscious.
This makes offering a reasonably comparable product for less an attractive proposition. You can see this at work in the current McDonald's (MCD) campaign for its premium coffee. A cup will set you back just $1, McDonald's ads currently promise. The purpose here is to peel off some part of the Starbucks (SBUX) market by promising a premium coffee experience for much less than you'd pay at Starbucks. Of course, the McDonald's coffee experience isn't comparable to walking into a Starbucks and ordering a double shot latte with skim, but McDonald's is betting that in the Great Recession, some part of the Starbucks market will be willing to trade down to the McDonald's premium coffee experience if the price is right.
The success of this kind of appeal is by no means guaranteed. Starbucks is fighting back by offering consumers the option of creating their own Starbucks experience for less by buying Starbucks coffee -- either in bags or in capsules that fit Green Mountain Coffee Roasters' (GMCR) Keurig brewing systems. Dunkin' Brands' (DNKN)Dunkin' Donuts chain has also begun selling branded K-Cups.
And it's not just coffee. For air travel, extra-legroom economy is not just a revenue enhancer for airlines, but also a new price point below business or first class. For car rentals, Zipcar (ZIP) offers vehicles for less to consumers who don't need them for an entire day. And retail chains such as Zara, owned by Spain's Inditex (IDEXY), are focusing on offering fashion with reasonable quality at a reasonable price.
I think you're seeing a lot of experimentation as companies try to figure out the best positioning in the Great Recession marketplace. Don't assume that all this involves simpleminded price cutting, though. The effort right now is to find the right value proposition -- and that means, so far, possible success for businesses that charge more, such as Whole Foods Market (WFM), or Annie's (BNNY), but that also deliver what is perceived as higher quality at the right price.
Finding the correct price point is difficult, and doing so is getting even more difficult right now, because the Great Recession has accelerated the move toward what I'd call "individualized pricing." This is an extension of the coupon clipping that my Mom would pursue with such discipline when the weekly supermarket supplements came out with their "Buy one ham with this coupon and get a package of our hot dogs for 50 cents off" offers. But it's an extension that's powered by the Internet. It means that, much to the discomfort of a Best Buy (BBY), a consumer can use a brick-and-mortar store as a showroom to examine and compare cellphones or flat-screen TVs and then use the Internet to find the best price using one of many comparison tools.
The process doesn't stop there. A majority of the people I know who are younger than 30 don't buy anything until they've done not just an Internet price comparison but also an Internet coupon search for discounts. It's as if my Mom could not only compare the price for StarKist tuna at A&P and Acme, and look for the best deal in the Thursday circulars, but also do a search to find out what company or site was offering the best coupon discount at that moment. (My Mom would have loved it.)
In this environment, a company doesn't just need to offer the best price in its local market at the time when the consumer is contemplating a purchase, but also has to beat all competitors available on the Internet in a constantly changing matrix of prices and discounts.
Unless you're a consumer company with a very clear brand identity and price proposition -- think Apple (AAPL) -- this is a recipe for a never-ending price squeeze.
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The greatest problem of these times is that the general population is now beginning to understand that they cannot trust any of the power structures of this nation. We are engaged in a rigged game that we cannot escape, let alone find a winning strategy. We are all left to fend for ourselves in uncharted territory, because all previous methods of preparing for financial security have been rendered ineffective. Our 401s have suffered, company pensions so longer exist, savings are earning 0%, bonds are paying less than inflation, the stock market is insane and now "government officials" are discussing how to make cuts to social security and medicare...in other words "we know you already payed for these programs, but you're on your own". Working till we drop IS becoming the only option left to most of us!
the difference between the great depression of the thirties and now is we're not out of it by a long shot.
there are more people here, no trust, and no morals...so most people think its okay to screw you because "its all about me". and its hard not to feel that way when you are bombarded by it daily via
t.v.,internet, media and most everyone you interact with socially.
We have abundant oil (ND, AK, TX, PA) - drill it and export it.
Build pipe lines and employ our 24% unemployed.
We have designers, engineers and advanced technology that can get it done safely and avoid eco-hazards.
We have the American worker that can build anything he puts his mind to.
My word people, if we can build amazing weapon systems, such as satellites, drones, and pilotless helicopters; stealthy ships, fighters and missile protection systems; we certainly have the expertise to safely handle and deliver our energy resources.
And we have biologists that can work in tandem to see that the desert tortoise and sand lizards aren't harmed. All we need is unity and leadership.
We have abundant natural gas that is now just burned off and wasted to the atmosphere. Capture it - build pipe lines and deliver it.
Put liquid natural gas engines in our autos - compress it, and fill your tank at home instead of service stations.
There are places to apply wind and solar energy also.
Import the best minds, like we used to.
We have the greatest technology for safe, cheap nuclear energy and the engineers to design.
We have abundant grain and livestock to feed ourselves.
We have everything except the willingness and leadership to get it done.
What don't we have? ECONOMIC LEADERSHIP!
Second - it seems that many economists are disappointed whether people are SAVING or SPENDING. Make up your dang minds, and know that many people (the little people) have a changed attitude about consumerism. Many people no longer trust banks and large financial related institutions (like AIG and Visa). We don't merely just distrust them, some of us have grown to disdain them. They are the enemy always looking to take as much as they can out of our pockets. (See my Jamie Dimon dart board?)
Third - We little people who have been hurt will never be the same again. If you don't learn from experience, then it's not worth the pain.
Today's statistics do not include people who's unemployment benefits have expired, therefore they are not accurate.
All in all, our true unemployment rate is much higher than the 10% they tell us. It probably rivals that estimate of the Great Depression.
A heightened perception of risk definitely applies to me. You can have a million dollars in savings at age 65, but, with medical costs growing geometrically, bond and money markets producing negative real returns, and stock markets barely even functioning anymore, it still doesn’t feel financially safe to retire. The biggest component of risk is loss of trust in Wall Street and the 1% of the 1% of people who run the economy.
Just went out , put twenty in the tank, I could have waited a day or two to do that, not many cars on the road, started to stop and get a breakfast sandwich, two for three dollars, but then thought, why should I three dollars, it is better off in my account, besides I had my coffee, sitting next to me, and would be home soon so I
made a smoked sausage, with two eggs, and cheese, lettuce and tomato, boy was it good, by the time I ate it it was close to lunch time, so I killed two birds with one smoked sausage and egg, w/ cheese, etc. and kept my three dollars! until the congress, and the leaders start working on the problems I will save every dollar I can!,
The Great Depression that start in 1929 had changed my parents attitude all their lived. My dad or my mom would not spend a dime if they didn't have to. They weren't influence by the expansion of the US economy of the period 1950 through the 1990's. My mom lived till she was 89 years old and was in a nursing home for the last 14 years. And, guess what.... there was still money left over after they both died.
The lessons I learned as a child from my parents has stuck with me all my life and I can't believe how well I have done. I watched my neighbors one after another go into foreclosure, file bankrupties and the list goes on and on.....And, I with half the amount of income of my neighbors I was still able to make it through these very depressing times.
It is sure excess in everything that has brought America down to it knees.
It's as simple as this. When people lose faith they are not motivated to work hard and contribute to the betterment of society. It used to be that people in the US felt good about their country because they felt they were a part of something special. They believed that if they worked hard and played by the social rules they would prosper, but that social contract has been shattered. Today the average worker is viewed as simply a disposable commodity to be tossed aside at will when the company wants to increase profits. They tell workers they are part of a team, but most of the workforce isn't that dumb ( I say most because some people are that dumb and cowardly). How come I'm treated like a team member when it's time to dole out the work, but when it's time for a real pay raise or time to dole out the profits I'm told to get lost because I'm too old, obsolete and expensive?
We are not team members. They hold all the power and they can spend at will to deceive the public and buy off the goverment.
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