Steve Lopez, who writes a really excellent column in the LATimes, had a good one today on the puzzle we face over the economy.
On one hand, we consumers are told that the state of the economy is determined by how much we spend so we all need to get out there and spend spend spend or the economy will fail.
On the other hand, we’re all told to get our economic houses in order, get out of debt, quit living on borrowed money, and generally return to the days when Americans knew how to count their pennies.
Who’s right? In his column, Lopez talks to a local economist who says the latter advice is. You can read the column here (click!)
It’s nice to see that, and nice to see that people are cutting back. Sadly, this means lowered state tax revenues, but even those seem to be leveling out.
The spending of the boom years was all debt-supported, clearly unsustainable, and we need to do this. If it means buying fewer toys for Christmas, and more money spent in local stores for local stuff like food, well, those factories in China will get by somehow. Maybe Chinese children will get a new passion for action figures, who knows?
What disturbs me still are stories saying that the housing market needs to “recover.” The housing market needs to stay down, because even down as it is now, it is still higher than it was five years ago. Since wages have not gone up in the last five years — during the Bush years they actually went down in terms of buying power — stuff we buy has to cost less too, just to stay even.
My brother, a real estate lawyer, says from where he sits bankers have tightned up so much it’s impossible for anyone to get a loan, and maybe they have. Some over-compensation is inevitable, especially after all those years when they’d give a mortgage for half a million dollars to anyone with a pulse and, sometimes, without.
So ride it out — the bouncing hasn’t finished yet. Best thing to do is what Lopez’ economist says to do: Take care of Number One first, pay down your debt, don’t charge anything you can’t pay off at the end of the month.
And realize having that new iPod won make you have a Merry Christmas.