Two Roads Diverge

The first in a week-long, three-part series.

I’m doing some reorienting. Prioritizing my non-work identities and relationships. Mid-life crisis? Don’t think so, but time will tell. Check back in a year or two from now. Lao Tzu said, “The journey of a thousand miles begins with a single step.” I’m taking the first steps of a journey whose outcome is unknown.

So what follows, like my identity more generally, is a work in progress. I don’t expect anyone to agree with everything. Or anything.

U.S. citizens are at a fork in the woods. A fork formed by a decline in manufacturing, technology-based automation, slower economic growth, and heightened economic scarcity.

More details here, although you don’t need Tyler Cowen or me to tell you about what you’re experiencing day-to-day.

We talk at length about the trees in the woods—fast rising gas prices, exorbitant health insurance premiums and college costs, and declining home values —but hardly at all about what lifestyles are most sustainable and meaningful.

The fork has prompted a radical shift in thinking. In the U.S., throughout the 20th century, parents thought, “I expect my children to live a better, more comfortable life than me.” Today the default is “I worry and wonder whether my children will be able to live as well and comfortably as me.”

Two roads diverged in a wood and I—I worried and wondered.

Economic security seems outside of our control. The economy is in constant flux and no job is secure. We can’t get politicians to think beyond their re-election and balance our state or national budgets. We can’t get them to stop fighting distant wars. We can’t slow China’s and India’s growth. We can’t reduce our dependence on oil. We can’t get consumers to stop shopping at Wal-Mart and other big boxes. We can’t stop companies from outsourcing jobs. And there’s seemingly no way to improve parenting, fix schools, or reduce inequality.

The fork is doubly tough for adults responsible for young people. They worry, what does their future hold? “I’m worried for myself and I’m worried for you.”

If we stop or even slow down, we may be overcome with fear for the future and overwhelmed with anxiety; therefore, we fill our days with work, shopping, entertainment, new apps, Facebook.

I wouldn’t be able to write this sentence if I weren’t extremely privileged, but I wonder if these tough economic times are an opportunity to slow down and think through more carefully how we want to live, to find ways to live more sustainable, meaningful lives. Or maybe, since lifestyle choices are intensely personal, I should say, how I want to live, to find ways for me to live a more sustainable, meaningful life.

Before fleshing out those concepts, consider the perspectives of the political left and right who have distinct opinions about the causes and consequences of the fork. Competing voices in the woods if you will. And yes, I’m conscious I’m overgeneralizing. Sometimes when you’re painting, you just grab the broad brush.

The right interprets economic history and life more generally through the lens of American exceptionalism. They’re more anxious about accelerating ethnic diversity than they are global economic restructuring. They refuse to acknowledge our relative decline and are nostalgic for the second half of the 20th century when the U.S.’s economic, military, and political advantages were much more obvious. They’re in serious denial, but if you tell them that they’ll label you anti-American, because in their worldview, American exceptionalism is self-evident.

Stagnant wages and high unemployment aren’t a result of technology-based automation, economic globalization, or our consumer choices. They’re temporary anomalies. Small bumps in the road. If the Kenyan-born, Muslim president (okay, that was uncalled for) would just embrace American exceptionalism, reduce the government to a fourth of its current size and lower taxes by half, we’d quickly reclaim our rightful role as the world’s unquestioned economic superpower. Then we could pick up living large again.

Wednesday—Part 2 of 3—The left, the President, and my evolving thoughts on the fork.

2011 Resolution

Resist manic materialism.

I have no one really to blame because I chose to watch MSNBC while preparing for the 2011 cycling season one morning last week.  It was the morning after 20 inches of snow fell throughout the Northeastern U.S. Business analysts worried “How will the conditions affect retailers since post Christmas shoppers will stay home?”

Does everything always have to be interpreted through the lens of economics?

I should have switched to the Zen Cable Network, a mythical creation of mine where a slow, beautiful, non-narrated slideshow with acoustic guitar accompaniment was looping. Slow moving shots of young people up and down the seaboard sledding and having snowball fights while parents sipped coffee and talked against the backdrop of translucent, oddly beautiful cities.

Manic materialism is the increasingly common practice of defining as many life activities and events as possible in economic terms. How does this—a winter snow storm, schooling, an art form, food, healthcare—make people more or less wealthy? It’s the result of our collective idolatry, and as a result, it’s our unofficial national religion. No activity is immune from its influence. Every life activity and event is reduced to whether it generates wealth.

And make no mistake about it, wealth is defined one way—materially. How much money do you have, how big is your house, how nice is it on the inside, how luxurious is your car, where do you vacation?

Schooling provides a poignant example. Why are U.S. opinion and business leaders over involved in reform efforts today? For one reason—our international economic competitiveness is slipping. As a result, our relative wealth is declining. That’s why math and science content is routinely privileged at the expense of humanities and social studies education. The business leaders at the education reform table are in essence asking, “How in the hell is an affinity for literature or history going to translate into more money for more people?”

Maybe I errored in using the phrase “our collective idolatry” a few paragraphs ago. Maybe all of us are exceptions, a fringe minority that believes we’re more social, emotional, dare I even say spiritual beings, than economic ones.

In prioritizing close interpersonal relationships, maintaining work-life balance, and consciously living below our means, we provide a viable alternative to manic materialism and threaten the status quo.

What else can and should we do in 2011 to provide a social-emotional-spiritual alternative to manic materialism?

Housing Prices

The conversation turned to real estate on a recent Saturday run when I shared my opinion that many sellers in our community were slow to grasp the correction as evidenced by their overpriced houses languishing on the market for six months to a few years.

You would have thought I suggested we extend our 10 miler another 16.2 just for the fun of it. The right wing nutters immediately jumped on me for assuming I knew more about free markets and home values than the actual homeowners themselves. And more importantly, who did I think I was, homeowners have the right to price their houses however they want.

Of course they do just like they have the right to be irrational and waste money more generally. Check out this chart:

credit—Jodi Ashline Newsletter

In the end, the average “priced right” and “priced reduced” home sell for the same price, but the “price reduced” home is on the market an extra 162 days. If “price reduced” homeowner has $100k in equity, and that equity was invested for 162 days @ 5%, they passed on earning $2,219. That’s the cost of exercising your constitutional right to overprice your home.

Around here at least, it appears that the larger and more expensive the home the greater the tendency to overprice it. That’s counterintuitive if one assumes, on average, the most well-to-do homeowners are the most business savvy, but I digress. We can also assume a much smaller pool of prospective buyers (I know it only takes one) and therefore the “average days on market” I suspect is far greater than 197, but for consistency sake we’ll stick with that.

Let’s consider a waterfront home that is four times the average at $1,317,392. Ultimately, after 197 days, overpriced sellers have to reduce their price $251,008 ($62,752 x 4). Let’s compensate for the too short “average days on market” by assuming that our waterfront sellers own their home outright. If “expensive price reduced” homeowner has $1,066,384 (the final sale price) in equity and had invested that for the too short 162 days @ 5%, they passed on earning $23,665.

To which the nutters might say, “That’s waterfront sellers right.” Which again, of course is right, just irrational.

Since I’m on math fire, and the nutters are down for the count again, one related thought. One oft repeated housing axiom is that housing corrections don’t matter if you’re buying and selling into the same down market. That’s only true in one of three possible scenarios—buying and selling similar priced homes. It doesn’t hold for buying a more or less expensive home than sold.

For example, consider the case of buying a more expensive home. Imagine you could sell your existing home for $300k or $100k less than its peak 2007 valuation. You buy a home for $1m or $250k less than its peak 2007 valuation. Had you made that move in 2007, it would have cost $1,250,000-$400,000 or $850,000. Today, the equation is $1m-$300,000 or $700,000 for a savings of $150k.

The opposite is also true. As a result of the correction, it’s more expensive to move down. Imagine you could sell your existing home for $600k or $200k less than its peak 2007 valuation. You buy a home for $300k or $100k less than its peak 2007 valuation. Had you made the move in 2007, you would have pocketed $400k, $800k sale price-$400k purchase price. Making that move today you would only pocket $300k, $600k sale price-$300k purchase price.

So assuming one has the resources, it makes more sense to move up in down markets and down in up markets.

School’s out nutters. Do they give out Economics Nobels for this stuff?

Three Changes

Life in the U.S. will be considerably different in twenty years as result of three changes that few people think about much at all. While we watch “reality television,” obsess about celebrities, follow sports as if which team wins really matters in the grand scheme of things, and shop til’ we drop, these changes will remake the United States in profound, yet unknowable ways.

1) Young women are running circles around young men in secondary schools and in colleges and universities. I’ve written about the implications of this before.

2) The world’s economic power is shifting to the east.

3) The earth is warming much more rapidly than anticipated.

What specific, symbolic, yet tangible changes might wake people up to these fundamental shifts? This example is far too subtle, but still worth noting. With respect to the first change, last year, for the first time ever, women earned more Ph.Ds than men. Another more dramatic example I anticipate happening sometime in the next twenty years, the first female President of the United States.

The second change isn’t as worrisome to me as to citizens whose identities are primarily national in orientation. I reject the zero sum assumptions of the global economic race metaphor. I celebrate the fact that hundreds of million impoverished, rural Chinese and east-Indians, fellow human beings, are experiencing markedly improved qualities of life.

Number three is the most vexing because reducing C02 emissions will require international cooperation on a level never before demonstrated by the world’s governments.

Like waking from a collective slumber, twenty years from now many will wonder when and how women became so much more influential than men, when and how three billion Chinese and east-Indians became so much more influential than 400-500 million Americans, and when and how we made such a mess of the natural world.

Empathy Impaired

The New York Times’ commentators have been writing a fair amount about how to revive our moribund economy and related issues like consumer and government spending, taxes, and unemployment. Sometimes I find the readers’ “recommended comments” more interesting than the essays themselves. They’re liberal and decidely cynical about life in the U.S. today. Their most common rallying cries are corporate greed, class warfare, out-of-touch politicians, and right-wing media.

Recently, they’ve been most fired up about members of Congress being out-of-touch with ordinary citizens, many who have been laid off, and too many that appear to be entering into permanent unemployment.

The question I haven’t seen asked is how does one, whether a member of Congress, or a college professor, develop empathy for the under-employed or short, medium, or long-term unemployed? The best answer of course is direct personal experience, but giving up one’s job in the interest of greater empathy doesn’t make much sense.

There have to be better ways, whether documentaries, essays, novels, photographs, music, and plays, that can help humanize the out-of-touch among us. The arts seem especially well suited to this task. I wish The Times’ irate, cynical commentators would each choose an art form and begin telling their stories with the out-of-touch Congress as their primary audience.

Globalization’s Trade-Offs

As a result of economic globalization, goods and services—whether tax returns, x-rays, math tutorials, or credit card or airline reservation-related phone calls—are being digitized and then sent via coaxial cables under the oceans back and forth to India, China, and other developing countries where people are willing to work for far less than Amerians because the cost of living in their countries is considerably less.

Additionally, just like in major league baseball and the NBA, labor pools are much more international. Recently in the U.S., we’ve hired lots of nurses from South Africa and the Philippines, computer scientists from India and Pakistan, and according to Bureau of Labor statistics, in 2009 there were 185,234 foreign born doctors working in the United States representing 127 countries. Twenty-four percent of all medical school classes include foreign-born students.

If national borders are fences of sort, the fences are coming down.

At the same time, U.S. citizens are increasingly angry and outspoken about outsourcing and the exporting of American jobs, a sentiment exacerbated by politicians, including the president, playing to cameras. All you have to do to understand how wildly inconsistent most people are on this topic is visit the closest Wal-Mart. Few U.S. citizens have connected the outsourcing, global economic dots.

They want their jobs protected from foreign competition, but at the same time want continued access to inexpensive toys, clothes, and toothbrushes from China and other developing countries. One study asked U.S. homeowners applying for home equity loans if they would like their loans processed by a U.S. firm in twelve days or a foreign firm in ten and the vast majority opted for the foreign firm.

Arizona’s anti-immigrant law is another case in point. Many undocumented workers are willing to work difficult, minimum wage jobs that few U.S. citizens are, thereby lowering the cost of living for everyone.

Advocate for protectionist economic and more strict immigration policies if you must, but be honest about the economic costs and also insist that legislators pass a 15%-20% insourcing VAT.

No Guarantee

The start of a  lecture I’m giving to faculty and students at Buena Vista University in Storm Lake, Iowa in a few weeks. Get your tickets before it sells out.

The Makings of a 21st Century Education

Consider the first and last sentences from a January Wall Street Journal article titled “Even-In-A-Recovery-Some-Jobs-Won’t-Return”. “Even when the U.S. labor market finally starts adding more workers than it loses, many of the unemployed will find that the types of jobs they once had simply don’t exist anymore. Harvard’s Mr. Katz warns that past experience suggests. . . conjecture is likely fruitless. ‘One thing we’ve learned is that when we attempt to forecast jobs 10 or 15 years out, we don’t even get the categories right,’ he says.”

Let that sink in.  The Harvard expert admits, “we don’t even get the categories right”. So what are college students to do? And what are faculty to do? How should faculty design curriculum, teach courses, and advise students in a “we don’t even get the future job categories right” world?