Time to pay the piper, but not to despair

December 23, 2008|By DAN RODRICKS

I see where a growing number of companies are suspending or reducing contributions to their employees' 401(k)s and, of course, that makes millions of Americans worried about whether they'll have enough dollars in their retirement funds to allow them to retire instead of ending up 72 years old and punching up lottery tickets from behind the counter at the Royal Farms store.

Several educated and intelligent people tell me they are no longer reading the newspapers or watching the networks because they can't stand the constant drumbeat of bleak economic news like this. They don't even look at their 401(k)s. What's the point? Like most of this big mess, there doesn't seem to be much any of us can do about it.

We've been headed down this road for a long time - houses purchased by people who could not afford them, homeowners using their equity as ATMs, credit extended to anyone who had room for one more slice of plastic in their wallets, Bush's tax cuts and Bush's costly war, companies constantly shipping jobs overseas, Wall Street demanding more and more growth and profits, banks and other institutions getting deeper into "exotic financial instruments," deregulation and no regulation, stagnant wages and the increased costs of health care, food and energy, and the graying of the American population.

We knew something was wrong with the picture even as it was being drawn.

The Bush administration pushed for tax cuts and predicted budget surpluses, but gave us nothing but deficits, not to mention debt from unfunded mandates, Social Security and Medicare, that have grown into the trillions of dollars.

"People kept living longer, and they kept saving less," James Fallows wrote in The Atlantic three years ago. "Increased longevity is a tremendous human achievement but a fiscal challenge - as in any household where people outlive their savings."

I read the Fallows essay - a prescient description of what the crash might look like, written as a theoretical "look back from 2016" - while on vacation in Mexico in the summer of 2005. All around me were happy Americans, swimming in the hotel pool and the surf, enjoying food and drink almost 24-7, this fun in the sun certainly financed on credit for the majority because, well, that's how we did things over the past 20 years.

"The evaporation of personal savings was marveled at by all economists but explained by few," Fallows wrote. "Americans saved about 8 percent of their disposable income through the 1950s and 1960s, slightly more in the 1970s and 1980s, slightly less and then a lot less in the 1990s. At the beginning of this century, they were saving, on average, just about nothing."

And we had two years with a minus savings rate, yet no one seemed terribly concerned.

And that's because we built an economy based on consumer spending, something that never seemed sustainable, even to those of us engaged in it.

And so here we are. And so what do we do?

You can sit around and worry. There's certainly plenty to worry about - particularly if you've lost your job, or your spouse just lost his or hers, or your company just announced a merger or Chapter 11 filing. And, even if not, you can still find reason to fret and sweat.

But, in the spirit of hope and generosity that is supposed to prevail in this holiday season - and, in the interest of not ending this column on a down note, I offer the following 10 things to remember in the midst of the mess:

1. If you haven't been hit with a job loss, eviction or foreclosure, consider yourself lucky. If you know someone who has, reach out. Say something encouraging and offer to help. That's the thing that holds families and communities together - that sense that we have each other's back.

2. Don't let worry about economic conditions beyond your control keep you from dreaming about the next adventure. This recession is going to test the patience of investors, entrepreneurs and creative people. But a dream on hold is better than no dream at all. We need our dreamers.

3. We'll get through this swamp. Every recession has had its own special character, and this one certainly does; it also seems to have a scope that scares the experts. A huge bubble has burst, but we'll survive.

4. Be a vigilant citizen. We've just come out of a presidential election that sizzled with excitement and new political energy. Let's keep it. Let's fix what's been broken for too long. Let's stop the bickering and get moving again. Stay engaged, stay involved and keep an eye on the new leadership and the old order that would resist it.

5. Bake pies for your neighbors. Get off the computer and go have a beer with an old friend, or a cup of coffee with a neighbor. Visit someone stuck somewhere - in a hospital or nursing home or prison.

6. Get a seed catalog and plan a victory garden for next year.

7. Give you favorite auto mechanic a bottle of his favorite beverage for keeping your old car running so well.

8. Start a savings account - for yourself, for your kids - even if you can only afford a few bucks a month. Be nice to pennies. Save them. Our national attitude toward pennies is one of annoyance, and that's got to stop.

9. Treat yourself to something you desire when you can afford it. Save your money and pay cash. You'll feel great.

10. Remember what's important: your family, your friends, your community. The 401(k) might have taken a hit, but if you have healthy kids, friends you can count on and a community that's stable, you have a lot. When you consider your assets, don't start with property, start with the photos on your desk or in your wallet.

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