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I'm James Maxey, the author of the Dragon Age fantasy series of Bitterwood, Dragonforge, and Dragonseed, the Dragon Apocalypse series of Greatshadow, Hush, and Witchbreaker, as well as the superhero novels Nobody Gets the Girl and Burn Baby Burn. I use this site to discuss a wide range of topics, with a heavy emphasis on cranky, uninformed rants about politics and religion and other topics that polite people attempt to avoid. For anyone just wanting to read about my books, I maintain a second blog, The Prophet and the Dragon, where I keep the focus solely on my fiction. I also have a webpage where both blogs stream, with more information about all my books, at jamesmaxey.net.

Wednesday, August 19, 2009

We've dropped!

For the last couple of months, the stock market has climbed almost as fast as it fell around the end of last year. A lot of people were wondering if this was a sign that the recession was over. I've read some predictions that the stock market could get back to its former highs before the end of Obama's first term. I'm not an economist; the fact that I've tried to make money writing fiction should reveal a lot about my lack of wisdom in all things financial. But, in my own admittedly limited corner of the world, I just don't see the recession ending soon. In fact, I think there's still a lot of gloom and doom ahead, and wonder if the current stock market rise isn't just a bubble following a bubble, filling up more with hope and hot air than with any actual money.

My main argument lies in the familiar phrase, "Shop til you drop!" As near as I can figure out, we, the American consumer, have dropped. And, we aren't going to be able to get back up until we shed all the debt that's weighing us down. A lot of people I know, myself included, made liberal use of the easy, inexpensive credit that was available for much of the last ten years. It was easy to borrow money when you felt confident that the day would come when you'd just blast away all your debt in one big lump. After all, incomes kept rising, the economy was good, and the money in your 401k completely dwarfed your total credit card debt. Also, there was all that home equity to draw on. And, if you did get into trouble with one credit card, no big deal. You had a dozen other offers waiting in your mailbox, waiting to carry your balance at 0% interest for a year.

Now, all these assumptions have been shattered. Credit cards I've carried have arbitrarily bumped my rates even though I've never missed a payment. The offers I get for new credit cards still have intriguing teaser rates, but the rates that follow look worse and worse. I can't count on my income rising; I can name a dozen employers who've frozen salaries, including my own. I also can't look at my 401k as this magical pile of money that only gets bigger; I had a year to watch it bubble down to almost half its high. And, while I have a comfortable margin of equity on my house, I do worry that, if I had to sell it, I couldn't get what I think it's worth.

After a year like this, any sane, rational person has to think twice about borrowing more money. Rather than carrying debt cheaply until the day when you can blast it all away, I think many people have made the same choice I have: Stop buying stuff on credit, double up on payments, and develop a multi-year plan to wipe out debt. Maybe once all my current debt is paid off, I'll consider taking on some new debt, but I doubt it. I think it's going to be five years, maybe ten, before I forget the lessons I've learned this year.

Maybe I'm a rare individual to feel this way. Maybe only, say, 10% of people have been scared enough by this recession to swear off credit. For our consumer driven economy to suddenly lose 10% of its shoppers is a scenario that has to keep economists awake at night, sweating feverishly. If retail stores see sales drop by 10%, then they'll wind up cutting employees. Factories will get 10% fewer orders, so they'll cut employees. And, as unemployment keeps rising, more and more people who still have jobs are going to cut back on expenses as the possibility that they might lose a job becomes ever more real. Or, if they feel secure in their job, perhaps they'll worry about stagnant wages. Or, if they have money in 401ks, perhaps they'll be saving extra to make up for employers cutting matching funds, or just to build a buffer in case the stock market plunges again. All these things argue for subdued sales for months and years to come.

Again, I don't have hard data to back this up. I mainly have conversations with friends and coworkers; the number of people I know who are underwater on their mortgages is pretty amazing. And, the number of people I know who are going to make less money this year than last year is also pretty high.

So, after this little economic bump from cash for clunkers and the reliable retail boost of back to school sales, I think we're going to be in for a really tough fall and an absolutely Scroogish Christmas.

Of course, there are few counter arguments, ones I don't lightly dismiss. The most obvious one is that retailers are really good at figuring out how to pry cash out of our pockets. I used to never eat at McDonald's, but this summer they've been pricing all soft drinks at $1, and now I can barely drive past a golden arch without feeling thirsty. A lot of the restaurants I used to eat lunch at charge $1.95 for a soda these days. McDonald's has figured out a way to make me give them money I wouldn't have a year ago, and make me feel like I'm getting a bargain out of it, even though their actual cost on a large soda is probably mere pennies.

And, it wasn't long ago I bought a new pair of jeans at Walmart. The price was $8. It caught my attention; I'm not someone who ever went to the mall and paid $80 for a pair of jeans, but $8 looked like a typo. Instead, it was real, and the jeans were good ones. Honestly, you just can't mess up denim too badly. And, now, when I go to walmart, I find myself wandering into the clothing section to see if there are any other bargains.

Also, I can't help but notice all the $300 laptops these days. I don't need a laptop. My current one is barely two years old. But, gee whiz, $300 is, like, a tenth of what I paid for my first computer. I can't help but look.

Admittedly, I'm not going into debt buying my dollar sodas and eight dollar jeans. But, every time I go into a store and come out satisfied I've gotten a good deal, I find myself happy to go back into that store at a later time. So, perhaps the retailers of America have my number, and my five year plans toward fiscal independence from debt are going to be cracked by offers too good to refuse. Maybe a year from now, I'll be looking at a $200 laptop and thinking, "You know, that's really a steal," and I'll have the cash in the bank to buy it... then whip out a credit card to buy another couple of hundred bucks of new software to get the most out of the new machine. I mean, I don't play a lot of video games, but it seems like a waste not to test out a new computer with a really graphic heavy game. And, in this slow, step by step way, irrationality will again seep into my personal economics, and the economy will roar again.

But by December? I just wouldn't bet on it.

5 comments:

rastronomicals said...

I found the 8-dollar jeans interesting. You'd almost think it wasn't possible to bring a pair of jeans to market for 8.00--I do remember buying 9.95 jeans as a young teenager, but that was a long, long time ago. :-/

What of course is going on here is that the tag on the inseam of those jeans said "Made in China."

I'm not really finding fault here with you, James, or with Wal-Mart (though in general I do sign on with their critics), because f&^*ing Levi's are made in China these days, as well, and The Gap is only too happy to charge you 35 or 40 bucks for them, maybe 28 if they're running a sale.

But the irony of someone from North Carolina--whose economy has been disrupted brutally over the last 20 years by the loss of its once-huge garment industry--buying jeans that are impossibly cheap only because they were made in China was too rich for me to pass it by.

I understand the emphasis you place on personal finances. Our country is in one sense worth nothing more than the sum of its household debt.

But here's a question for you, think of it as a thought experiment: if households all of a sudden began using their credit cards to buy more expensive, North Carolina-made jeans, thus resucitating the North Carolina garment industry, and bringing jobs back home from China, might the household debt then incurred be termed "productive?"

More bluntly, less hypothetically,and only on a slightly different track, if cheap goods induce consumer spending, but only at Wal-Mart, then it seems to me the good done is going to be severely limited at best.

James Maxey said...

Ras, I actually come from a family where many people were employed by the textile business.

As you note, that industry is gone now. However, before it went away, it had stopped employing Americans. North Carolina has a very high rate of hispanic immigration, and in the waning days of textile most of the workers on the floor spoke Spanish. I checked the tag on my $8 jeans: They're made in Mexico. Instead of jeans being made in America by Mexicans, they are being made in Mexico by Mexicans. That seems... efficient.

I want to single out a specific line of your comment: the notion that the North Carolina economy was "brutally disrupted" by the loss of textiles. Certainly many lower skilled workers were hurt by the loss of the mills, but the notion that North Carolina was substantially harmed by losing these factories is just not true. Most small towns lost their mills just about the time that they gained a Walmart.

It wasn't such a bad trade. Most floor jobs in textile mills paid squat. Factories would run hard to fill orders part of the year, then sit idle. People who worked in factories took unpaid layoffs as a fact of life.

As factories went away, different industries flowed in, aside from just Walmarts (but, there are a LOT of freakin' Walmarts). At the same time textiles were failing, Charlotte became a banking mecca. Most of these banking jobs paid much, much better than factory jobs. We also became a big center for the drug industry and software, thanks to the Research Triangle Park area. Unlike many northern states, North Carolina has been gaining population and jobs. Detroit turned into ghost towns when factories left, but North Carolina escaped that sort of blight.

The beauty of the capitalist system is that a state could lose an entire industry (two, actually... we've also moved our furniture industry overseas) without entering into a depression.

Some people scoff at the notion that the factory jobs are going to be replaced by jobs at Walmart. But, I know people who made exactly this transition, without suffering a decline in lifestyle. Again, we're not talking about losing automobile factories in Detroit where workers were making $50 an hour. Many textile workers were lucky to see $10 an hour.

I don't think it would be useful to bring back textile jobs. Making clothes will never be high dollar labor. You'll make a much more stable living selling jeans than you will sewing jeans. You'll make a better living driving the trucks that ship the jeans, or working in the warehouses that distribute them, or servicing the computer networks that make this international flow of commerce possible. There are probably more people employed in the systems that bring the goods to Walmart than were ever employed manufacturing the goods. Judging by the construction sites I drive by, there are probably more people employed building Walmarts than were ever employed by the textile industry. So, yes, $8 jeans can save the economy.

That said, I'm not sure that people are even going to go out and pay that eight bucks. The trend is that employers in "stable" industries are freezing wages and have stopped hiring. Fear for future income is probably the biggest drag on the economy at the moment, since it has people worried about managing their current debt. If US employers really wanted to jump start the economy, the smart thing to do would be to start hiring people now while the pool of available applicants is good, then keep the raises flowing. As long as people fear that the future might bring lower wages, they aren't going to be going back into stores to shop. At least, that's my gut instinct.

rastronomicals said...

James, you absolutely have me on the use of the word "brutally." It's a word that I knew wasn't apt even as I wrote it, but alas, the natural urge to use persuasive language got the best of me.

I will, however, still argue that North Carolina's economy has been disrupted--even if not "brutally" so-- by the loss of the garment industry.

The fact that North Carolina has become a banking center, has become a technological center, or continues to be a trucking center are happy and saving coincidences, to be sure, but they are all the same still coincidences. The germination of these things has nothing to do with the garment industry: there's nothing about their existence that disallows the textile trade, and there's nothing about the textile trade that disallows the tech, truck and banking stuff.

You made it sound as if the rise of the new sectors was caused by the demise of the old . . .

And this applies to the employees as well. It's nice that tech jobs at tech salaries for degreed workers have been created, no doubt. North Carolina wants to attract these workers. But no-one--"American" or legal immigrant--lost their job at the mill, then found one working in the biotech sector. Well (and I am trying to avoid my natural hyperbole here), not many did, anyway.

I guess you could say that I work in light industrial equipment sales. Before the mills left, one of our industry's greatest outlets was to the textile mills in the Carolinas, because all those mills needed equipment to transport and store their goods in-plant. While Wal-mart has similar needs, they source all that kind of stuff direct from China. So it's not only the textile industry that's gone, it's those small businesses such as the one I work for that supported the textile industry, as well.

I have no idea what percentage of the dollar spent at Wal-mart goes to their store employees, what percentage goes to their execs, and what to their shareholders. But what's left might as well be dropped into a black hole, because it is money that has left America, and is funding economic expanssion elsewhere.

My belief, if it needs to be stated, is that you can't pretend that it's OK for America not to manufacture. It's great to do the tech stuff and the logistics stuff. But to think that it can replace the manufacturing we have ceded to the rest of the world is naive in the extreme.

Prior to the current recession, our industry had experienced a hyper-inflationary period (which you can be sure was bad for business), fueled in part by a worldwide steel scarcity, basically caused by the Chinese demand for it. Even disregarding the whole ravenous Chinese component of my argument, if America still was able to make steel, the destructive hyper inflation never would have happened, because the addition of American steel to the equation could have met the demand.

The problem (of course) is that American goods can't compete on price, not when American industry pays millworkers 10.00 an hour. But as the quality of goods made in the third world and imported here remains iffy, it seems as if there might be a niche for slightly more expensive goods of higher quality out there somewhere . . . . if management can resist the urge to outsource, and consumers can learn to shop on more than price alone.

Whether given the current economic conditions this is the right time to say such a thing is another matter entirely . . . .

James Maxey said...

"You made it sound as if the rise of the new sectors was caused by the demise of the old . . ."

I'd say that the causation ran in the opposite direction: The rise of the new industries led to the death of the mills. The internet, banking, and shipping industries all combined to drive down the transportation and communication costs that had been a barrier to overseas manufacturing. Thirty years ago, it didn't matter if workers in Indonesia would work for a tenth of the wages of a US worker, because any labor saving were offset by the high price of American managers trying to communicate with foreign plants. Now, an email to Vietnam costs exactly as much as an email to Asheboro, NC.

And, with few exceptions, the children of American textile workers in North Carolina weren't going to go take jobs in textile factories. They were going to college and getting jobs in hospitals, finance, and media. The education boost set in motion in the 1960's, where college became an expectation for a majority of students instead of just an elite few, was ultimately going to kill textiles. People with degrees in philosophy might wind up working at McDonalds, but they sure aren't going to go work sewing waistbands onto underwear. The expectations of what a "good job" was shifted. That's why we had such a wave of immigration in NC to fill jobs in chicken houses and hog butchering plants: Bluntly, Americans with their dime-a-dozen bachelor degrees just had better options than to spend their days ankle deep in entrails.

Finally, as for the quality of goods, it seems to me that there are some products where you just hit a wall and they really can't get any better. My blue jeans are one such product. They are faded glory carpenter jeans. They are 100% cotton. I'm holding them in my lap right now, looking them over, and all the stitching looks flawless. They are comfortable; they've worn well through the summer and have survived my rather lackluster laundry skills. The reason that these aren't an $80 pair of jeans has less to do with their manufacture than with their marketing. These aren't being advertised in Vogue. Today's hottest supermodels aren't getting paid a million bucks to pose in them for an hour. There's not a specialty store in a mall where artfully sculpted manikins direct from Paris display them. There's not a coordinated media campaign to get rappers to mention the brand name in a soundtrack to a movie where Brad Pitt wears the jeans as he fights aliens.

American's don't pay more for quality. They pay more for the illusion of quality. They pay more for coolness. Any grandma with a sewing machine in a village in Mexico can sew the jeans. It takes a US consumer manipulation machine to turn a few bucks of cotton into a hundred dollar pair of pants.

James Maxey said...

By the way, Ras, I want to point out that it's weird that I'm defending the loss of manufacturing, because I'm fundamentally attracted to the type of work where people actually produce something of value. I admire people who actually have a little craftmanship and skill and know how to fix a car or build a deck over someone whose skills are devoted to, say, designing credit card solicitations.

In some ways, the real enemy of a worker in a textile mill isn't foreign competition but is, instead, machinery and automation. A lot of mill work was repetitive work that required a lot of speed and accuracy... and repetition, speed, and accuracy just happens to be the hallmark of a fine machine, but not so much the hallmark of a well rounded human being. I was involved was with a woman who had a loom and would hand-weave some terrific stuff. She tried to sell it; her dream would have been to actually make a living at it. It was pretty much a doomed goal, however. She could spend days producing a single item; in the same time, a machine could have produced something that looked pretty much identical a hundred times over. So, long before China took the jobs from mill workers, machines had already taken their share, and will continue to take an even greater share. Perhaps, in the end, a good trend for a machine maker such as yourself.