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The U.S. Economy Is NotYour Friend Right Now

Posted Sep 13 2008 5:40pm

During my last few years of work, a lot of people started calling me a pessimist. It’s true I wasn’t happy at work, but there was more to it than that.

As I had posted many times, I hated my commute, I was dissatisfied with my little house on a freeway and I wanted to spend more time with my kids. My company went through several rounds of layoffs, and more were in the offing. Maybe I wasn’t in immediate danger, but my friends were.

Benefits were cut each year – including the pension – or fees for others rose. In eight years, I never received a promotion, which was partly the result of the gray ceiling I write about here. In real terms, I was making less at my job than I was when I started, even though the workload increased monthly.

I made a reasonable salary, but I began to feel trapped financially because I saw no chance for short-term or long-term growth. Apparently, I’m not alone, according to a New York Times story.

This economic recovery may be the first since World War II in which real wages have failed to increase for most workers, reports the Times. The median hourly wage has actually fallen 2 percent since 2003.

Why have Americans, who are more productive than any time in history, put up with a drop in real wages during an economic boom? Although employers have been paying for increasing benefit costs (until recently), I suspect Americans have found solace in increased home values.

Weak pay raises don’t seem so bad when a home jumps from $100,000 to $300,000 in just a few years. Americans can and have been spending that equity on everything from home improvements to medical bills to boats.

But as home sales continue to stagnate or even weaken, prices will begin to drop. American tolerance for small pay raises will drop. And the housing market is clearly stalling, reports Bloomberg.

Couple that with high energy and food prices, and Americans will get downright surly. Even the nation’s new Federal Reserve chairman Ben Bernanke sees the danger, who mentioned it in a speech on Friday, according to the Times.

Which brings me back to the whole pessimism conversation. I don’t see myself so much as a pessimist, just a realist. I just believe that when the economy is going one way, sooner or later it will go the other. It is growing ever clear that negative forces will soon bring the economy down.

As parents, we need to prepare for that eventuality, just like we need to find a good school for our kids. It’s too early to determine whether this will be a hard crash or a soft one. I thought the last crash should have been much harsher, but there was a lot of government mucking around – such as tax cuts – that ended the crash a bit prematurely. It is very possible Americans will pay for that this go-around.

But even if we have a small adjustment, it’s good to be cognizant of that fact. This is the worst time, for example, to take equity out of a house unless you have a plan for making more money with it. Just don’t tell me you bought investment property in Florida or Arizona, where the danger of speculative home prices are most apparent, according to another New York Times story.

In fact, I’m less pessimistic than I have been in years. I sold my house – I should know for sure today – just before the market really crashed. And I’m now working for myself rather than a large corporation. And I’m about to live above Lake Michigan in an apartment with a really great view. Of course, I may become a pessimist again if this venture fails.

Nah, I’ll just switch to Plan B, whatever that may be.

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