Economic Realities

If you’ve been on our planet during the last month, you know that the U.S. economy—for a variety of reasons, most notably the credit crisis and its domino effect—is currently in bad shape. From Oct. 9, 2007 to Oct. 10, 2008, the three most common U.S. stock indexes—the Dow Jones Industrial Average, the S&P 500 and the NASDAQ—each had declined about 40 percent. The U.S. economy has lost 605,000 jobs since January, shedding 84,000 in August alone. U.S. unemployment now stands at 6.1 percent, a five-year high, and some economists project the unemployment rate to continue to rise through the spring of 2009, reaching 7.0 percent or more.

 

 

From Wall St. to Main St.

 

If you’ve grown numb to the numbers, perhaps the headlines of recent corporate casualties, including AIG, Lehman Brothers, Wachovia and Washington Mutual, have made an impression on you. I do business with two of those firms, and I keep checking online news sources to see who now owns them! You might know someone, as I do, who worked for one of those firms for many years and has lost their job.

 

Ah, you might say, “They’re all financial services firms and of the Wall Street ilk, so their troubles don’t really affect me. All I care about is Main Street, where I do my business.” Well, the evident demise of the economy—including Main Street—hit home the other night when my wife sadly informed me that her favorite women’s clothing store is going out of business. (Where will I go now to buy gifts for her?) Many other retailers are in trouble, and the National Retail Federation predicts holiday sales from November through January will rise just 2.2 percent. Looking back on it, the news in July that national restaurant chain Bennigan’s and Steak & Ale had gone bankrupt and that Starbucks was closing 600 stores now seem like they were a shot across the bow of our economic ship.

 

The truth is that Wall Street and Main Street are inextricably connected. In fact, from an even greater macro perspective, the U.S. and world economies are inextricably connected. Clearly, when the U.S. sneezes, the rest of the world catches a cold.

 

 

The Psychology of a Downturn

 

As one’s attitude goes, so goes one’s day. People have been taking in the dismal economic news, processing and internalizing it. Just as there was a significant psychological element to the Great Depression, because of the almost instantaneous dissemination of information today, there is arguably a greater psychological component to the present economic downturn.

 

Consumer confidence indexes are used to gauge how people are feeling about the future, from an economic perspective. The Consumer Attitudes and Spending by Household Index dropped 32 points in October 2008, the largest single-month drop since the index’s establishment in 2002. The index fell from 69.2 in the previous month to 37. This most recent monthly survey of 1,000 U.S. adults found that 27 percent believe their local economy will be weaker six months from October (compared to 13 percent the prior month) and 69 percent felt less comfortable making a major purchase than they were six months ago (up from 55 percent in September).

 

Of course, as consumers spend less, companies make less and that can impact hiring and retention of staff, as well as curtail investment, which in turn leads to less consumer spending, which leads to… It’s obviously a vicious downward spiral.

 

In my next post, I plan to write about how certain nonprofit organizations and for-profit companies are dealing with these economic realities.

 

Ken

 

 

 

 

 

 

 

 

Meaning is the New Luxury

 

I am neither a subscriber nor a regular reader of Vanity Fair magazine, but its July 2007 issue on Africa and the various initiatives being undertaken to ameliorate the continent’s longstanding problems caught my attention. While paging through the issue, I came across an ad for the (RED) business model designed to create awareness and a sustainable flow of money from the private sector into the Global Fund, to help eliminate AIDS in Africa. The first page of the multi-page ad presented this simple, yet provocative statement: “MEANING IS THE NEW LUXURY.”  

 

I would posit that the statement generally rings true for my generation, the Baby Boomers, as many of us have engaged in, at times, prolific conspicuous consumption, experiencing the benefits of material things, but also their limits in terms of satisfying our deeper needs. I remember attending (and feeling out of place at!) a highly exclusive, over-the-top party at a lavish setting in tony Atherton, Calif. around the very peak of the dot-com boom. I remarked at the event that it was like a frat party on steroids! No expense was spared in putting it on, but for all its glitter and charm, there was a sense of emptiness about it, a lack of meaning. For today’s uber-rich, in economic terms, the actual marginal utility gained from marginal consumption is virtually nil, if not negative. How many more homes or cars can Bill and Melinda Gates benefit from?

 

For the Millennial generation, I have gotten the sense—and some sociologists have written—that they are generally more meaning-driven. My Millennial daughter skipped an all-expense-paid trip to the Bahamas this past summer, opting instead to help (again) rebuild homes in sweltering New Orleans as part of the continuing post-Katrina relief work. Why did she make that choice? Quite simply, it was all about meaning. As she has often said to me, “Dad, I want to make a difference.”

 

Meaning is a core element of being human, so it’s not surprising that it is increasingly being sought. Arthur C. Brooks, professor of public administration at Syracuse University, writes in Who Really Cares: “In his classic book Man’s Search for Meaning the psychiatrist Viktor E. Frankl defines meaning as the objective of human striving, and he explicitly links it to charity. Frankl believes that giving can be a source of meaning, a way to personal enlightenment: ‘Being human always points, and is directed, to something, or someone, other than oneself—be it a meaning to fulfill or another human being to encounter. The more one forgets himself—by giving himself to a cause to serve or another person to love—the more human he is and the more he actualizes himself…self-actualization is only possible as a side-effect of self-transcendence.’”

 

Ken