“This great economy” is a phrase I haven’t heard for a while, but I wonder why.
I paid more for gas in 1980 than I did when I filled up yesterday. The nation’s two biggest sandwich houses are offering 12-inch sandwiches for five bucks. Restaurants are lowering lunch and dinner prices. The NBA’s Indiana Pacers are offering a few seats for five dollars (and they beat the Lakers last night—whoa!). Housing is affordable again, and the selection of both new and older homes has never been so good. The dollar is up in international trading. Lots of big-company stocks are selling for dimes on the historical dollar. On television a couple weeks ago, I saw a new, full-size pickup truck advertised for under $11,000. Most food items have seen overall drops in price since midsummer highs. Even seasonal Christmas items are enjoying half-off pricing—a month before Christmas! Even the IRS sent me money for a change.
Okay, so what’s the problem here? Why aren’t we mobbing the stores, buying new bedding and appliances, and filling our driveways with new cars?
We Americans aren’t buying from this palette of historical bargains because we don’t have any money. We have been buying everything on tomorrow’s money for so long that we’ve lost track of how many “tomorrows” we have squandered. We have no savings, no wealth. We’re “upside down” in more than our cars and homes; we’re upside down, net, for life.
The problem is that we have already spent all of today’s money. In fact, the credit-making industry recognizes that we have spent all the money that we’re likely going to be able to repay, ever. They have decided to stop irresponsible lending, even though the Federal Reserve and Treasury Department seem willing to front them cheap money without limit. No—as soon as the banks get cash, they pay debts, armor their balance sheets, or buy additional—performing—assets. They don’t want to again be exposed to the same dangers from which they think they have so narrowly escaped.
Contrary to central planners’ statements and opinions, we are not living in “the wealthiest nation in the world.” We are in fact living in the most-indebted nation the world has ever seen. Spending merely gives the appearance of wealth. As a nation, we need to learn that the common wisdom of “perception is reality” is cheesy self-delusion. This notion, coupled with our obsession with building undeserved self-esteem, has gotten us to the brink of institutional bankruptcy.
Saving and good investment are the only certain roads to wealth. The only way out of the mess we are in isn’t spending, but frugality. Frugality allows us to build real wealth. Frugality discourages gambling and other forms of mal-investment; frugality encourages the pursuit of knowledge, so that we may recognize good investment opportunities when they present themselves—and avoid merely-popular schemes of all kinds. In the end, frugality results in positive net worth—real wealth.
And let us remember that a government’s behavior cannot change, or even long circumvent these rules; what is economic truth for the individual is true for a group of individuals, or for the representatives of these individuals. Mere collective will and a printing press can’t change basic laws.
In short, perception is not reality. Reality is reality, and the closer to reality is our perception, the closer to sanity will be our actions.
By Tim Kern
