So, There’s a Depression, Now What?

As promised, here’s a column on how to survive the next decade meant for Millennials and late Gen-X who have based their future plans on the indefinite continuation of prosperity and importance of college-taught skills.

Everything your suburban parents told you about the future was wrong.

Hate to break it to you, but you’re not going to have a better, easier life than your folks did because you went to college.  As a matter of fact, if you’ve got a bunch of student loans, you’re going to spend the next ten or fifteen years significantly worse off than they did.  The suburbs, the McMansions, the long commute–all of those are as dead as flappers and bathtub gin, wiped out in the orgy of corporate and government immorality and excess that was the ‘oughts.

Along with the lowered expectations, you’re going to have to deal with a constantly uncertain future which includes the loss of direct political impowerment–the latter due to the fact that you’re going to be spending so much time simply surviving that you won’t have time to change the world.  The speed of the internet will give you more than the disenfranchised Okies had, but not much.  Revolutionary change is the purview of the children of the upper-middle class and your parents just lost half the value of their houses and retirement accounts.

Baby-boomers don’t remember hard times, but we remember long hours at the feet of our parents and grandparents–they were still alive, so that proved that they could survive much harder times than you are going to face.  (There was no bank safety net in 1929–rather than losing “pretend values” in inflated houses and bloated 401ks, they put their paychecks in and watched the teller windows close for four or more years.)

For what it’s worth–and I don’t expect everyone to listen, any more than they did in March of 2007 when I first warned about the onrushing depression, here are some items culled from their advice and adapted for the realities of the 21st Century.

Plan on living on half your pre-crash salary.

Or, in the case of soon-to-be college graduates, your projected salary.  Odds are that you and/or your significant other will be out of work quite often as the economy re-adjusts and that the jobs that you’ll end up taking will pay quite a bit less than you planned.

How long will this be true?  It depends on which theory of economics applies.  The new President has a plan of action similar to the one that Roosevelt pursued during the 1930s.  Murray Rothbard claims that Roosevelt’s programs extended that Depression by six additional years.  Conventional historians counter that the Roosevelt plan reduced suffering and shortened the trough.  Others claim that nothing happened either way and that the reason that the Great Depression ended was the increase in innovative investment due to the US’s entry into the Second World War.

In short, no one knows, except that it’s not going to end anytime in the near future.  Vox Day, who has been spot on economically over the last decade, thinks that before it ends we’ll be seeing 17% unemployment in the United States.  This would not surprise me in the slightest and in order to keep eating and end up on the other side in a position allowing prosperity, every step from now on will have to be carefully considered.  It is entirely possible for a person to have a high-paying job one week and be out on the street the next.

Here’s some advice for getting yourself ready for harder times:

Sell as much of your extraneous crap as possible and pay off any loans you may currently have.

If Prescott’s right and we’re about to hit inflationary times, your interest rates, which are tied to the prime in many cases, will skyrocket and all you’ll be able to afford is close-to-minimum payments.  Remember, all you have to do is be late on one payment on some credit cards for them to jump ten or fifteen percent in rate–if you’re missing payments, you sure as hell can’t afford that to happen.

If I’m right and we’re going to have deflation, you want to hold on to as much cash as possible, since companies, desperate to keep any profit going at all, will be dropping the price on everything. This means that the dollars under your mattress will buy you $1.10 worth of stuff in a few months–it’s similar to what we’ve seen in electronics, but applied to the economy in general.  Those of us on fixed government pension incomes or with jobs that we hold on to will be sitting pretty in a deflationary situation.

So, debt is bad and cash on hand is good–besides, you didn’t really need that Boxster or the wall-length TV, did you?  Remember, the government made it much harder to declare bankruptcy than it used to be, so that option is less inviting than it was twenty years ago.

Rent, don’t buy.

As the number of unsold “investment houses” increases, owners, desperate to get anything out of them, will be dropping rents to what people can afford.  This is already starting to happen with business property in the downtown areas of large cities.  I expect this trend to continue and expand.  How low property values go will depend on inflationary/deflationary scenarios and how high unemployment goes.  Since that’s uncertain, you’ll lose every cent you put into a house that’s foreclosed and often that will be considerably more than you’d have had to pay for rent.

Team up to pool resources.

You don’t have to be married to use the kind of “efficiencies of scale” possessed by polygamous families.  It is cheaper to live as a couple than it is alone and costs per person can be reduced by up to 75% per person by living as a group of five rather than as a couple.  In addition, large family or peer groups increase the liklihood of one of the members having employment income as times get harder.  The number of practical skills in the experiential pool are likely to be much higher in a large group than in a couple.  During the 1930s, all this went without saying, since the nuclear family didn’t exist until after World War 2.  Large extended groups, related or not, will mark a return to the natural state of human living.

Despite low costs and the lure of bargains, do not invest in stocks.

From a strictly historical standpoint, the slowest recovery in a suddently-altered economy are stocks.  If you look at the Great Depression, the values of the major index did not reach 1929 levels (adjusted for inflation) until 1954.  You do not want to wait that long.  Those who had liquidity during the GD bought tangible items being auctioned off to pay back taxes–some of them are still in the family three generations later.  While it is not necessarily true that the same conditions apply during this time period, I believe that the kind of government interference in the marketplace that’s coming up will impede, rather than encourage, stocks’ return to pre-crash rates.

Keep enough money on hand to relocate.

Recovery, like the rest of the future is not going to be evenly distributed.  In the past, those who were willing to go where the jobs were had an advantage.  While this will be lessened by 21st Century communications, skills in tangible industries cannot be transmitted over the airwaves.  Get some “get out of the country” money together and don’t touch it, no matter what.

Whatever you do, keep your internet access and phone service.

The greatest advantage we have over the folks in 1929 is the speed and volume of our communications technology.  Even though it seems to be a luxury, the ‘Net will be invaluable to set yourself up for the next section of advice….

Diversify Your Skill Set

“Anything for a Buck America”–You’re Punk’d

A large number of seemingly-indestructable American institutions are going to become a thing of the past in the next ten years.  People who are currently involved with the Big Three Automakers, unions like the UAW and Machinists’ Union, print newspapers and magazines, non-bank financial institutions, and large law and lobbying firms will find themselves in the same position as the makers of buggy whips after the introduction of the automobile.  The economic and moral paradigms that allowed these institutions to prosper will have changed permanently by the time the dust settles.

The false economic paradigms involved the belief that the rate of innovation allowed the perpetuation of inherent inefficiencies in concept.  In other words, business was so good that CEOs could have salaries 300 times that of a line worker, the union workers could work thirty years and retire with full salaries, and newspapers could charge for advertising even though no one was reading them anymore.

The false moral paradigms involved the belief that if an end was good enough, any means was allowable.  Over time, in a post-religious society, this evolved into one where the improvement of one’s own position was a desirable end that would allow illicit means if no one was watching or if the means were clever enough.  This has culminated financially in pyramid schemes like Madoff’s and politically in the kind of corruption Blo-jo has demonstrated in Illinois and that permeates even the new administration, with its ties to Tony R and the Clinton Foundation’s foreign “donations.”  When financial times get hard, the moralities taught by the major religions become more attractive across society.  This will institute a backlash that will ripple through the halls of both Wall Street and K Street.  While I don’t expect that investment, lobbying, and law firms will be outlawed, per se, I expect that they will be regulated to such a great extent that they’ll have to lay off half of their junior partners just to pay their own legal fees to satisfy the Federal regulators.

What should I do with my new degree in Finance?

Damn, sorry to hear about that, dude.  Tough break.

Best thing to do would be to start working on some salable skills that could aid in keeping you alive.  Right now, an internship in organic chicken farming is a lot better deal than one at Citibank.  The arts and entertainment are often good ways to bring in nightly money.  Bars and dance clubs have good evenings as people try to forget their troubles, you might consider calling your classmates and getting a garage band going if you have any talent.  (Billy Joe–you may get your chance to be a poet and street musician, after all.)

Odds are, you’ll be out of work enough that both gardening and craft skills will help to save enough money to keep a roof over your head.  There are hundreds of sites on the Internet that teach you how to sew your own clothes, raise your own zuccini, cook your own meatless dishes and fix your own electronic devices.  Any of the above can also be used as barter to get you stuff you cannot make yourself–a move towards a more cashless economy.

“Ha!  My degree is in Electrical Engineering–I’ve got a job for sure!”

Well, ‘fraid not.  You see, the second thing that happens after a company lays off the 20% of dead weight in their low-level work force is that they start cutting R&D.  If you look at the late 1970s, the American carmakers had so little research going on that they nearly lost the auto market permanently to the innovative Japanese.  The word in corporate America is “last hired, first laid-off” so you either won’t get a job, or you’ll have it until the next ledge on the way down to the bottom is reached and you’ll get axed, then.

There is a bright spot for you, though.  With the lack of competition from the major corporations, garage tech has a higher liklihood of coming up with something that someone will want to purchase in the periods when there’s a bit of money floating around.  Apple and Microsoft both came out of the late-70s recession and I doubt very much that they could have done so if IBM and Texas Instruments had had their engineering staffs fully operational.  I know that this sounds like the equivalent of saying “get your classmates and start a band” but the paradigm has worked in the past and now, with the speed of communications, you don’t even have to be in the same town to work together.

“How about the intangible professions, I hear education and health care are increasing the number of jobs?”

They are, for now.  The problem with education, though, is that jobs there are dependent on a reasonably affulent tax base, which has just gone with the wind.  There’s a feedback delay of about two years, I figure, between the loss of business and personal revenue and its reflection in the education industry.  No big loss, I figure, modern educational institutions are useless at best and a menace to society at worst.  The University of Illinois will be laying educators off by 2010, I figure.

Health care is a more chaotic case–after all, when you have a heart attack, you don’t look at investment opportunities.  There will always be some jobs in health care, but the insurance companies that are currently financing the expansion of hospitals and clinics have been hit as hard by the financial downturn as the rest of the economy–one of the big three, as a matter of fact, is close to bankruptcy.  If the government gets involved, there will be extensive regulation of one kind or another that will freeze innovation and limit the number of jobs available in the industry.  In addition, a government-run health industry will make it dependent on collected revenue.  If there is a universal health plan promulgated by the Obama administration, I figure the industry lay-offs will start about 2011.

Plan for the Other Side of the Depression

Sooner or later, the depression is going to be over and the world will go back to a semblance of normalcy.  That world won’t look very much like ours, however.  The suburbs will be ghost towns, workers will get paid more in cash and less in benefits, and health care will either be self-paid (in the more libertarian future) or totally governmental (in the police-state future).

Business will be cut-down, streamlined, and transparent to a degree that no one can imagine right now.  I expect that the day-to-day dealings of all industries to be examinable by the government and the citizenry–sort of a “freedom of information act” for commerce.  Families are going to be larger (and not necessarily all hetero or monogamous).  They’re also going to be church-going–I expect that this long financial downturn will finally put the kibosh on the “brights” movement and most of the secular humanists.

So, you want to be rich in twenty years?  Figure out new industries that depend on lightning-fast reactions to the needs of large extended families and that operates in a totally moral manner.  That ought to do fine.