The Great Exuberance

We currently live in a period referred to by many as “The Great Recession”.  After the fall of 2008, the economy hit a point from which it has not yet recovered.  We begrudgingly wait for the moment where we can safely get back to the way of life we once knew.  But I predict that twenty years from now we will not look back on this period as a Great Recession at all.  The fact is that we enjoyed a period of great excess in the decade prior to 2008.  Alan Greenspan referred to the period from 1996 to 2006 as one of “irrational exuberance”.  Now, in 2011, we live in a more normal economy.  This is not the Great Recession.  It is the end of the Great Exuberance.

Unemployment is the relationship between the people who are seeking jobs, and the number who are actually employed.  Right now it appears unemployment is high because a larger percentage of people are seeking jobs than ever before.  In U.S. history prior to 1980, more than half of the American population did not work, nor did they seek jobs.  I am referring to the children, the elderly, the ill, the students, the unemployable, and the home parents.  According to the USDept. of Labor, the US workforce averaged around 40% from 1950 to 1970.  It then climbed briskly to an all time high of 50+% during the Exuberance, and this over employment was reflected in lower work ethic, lower customer service, and lower production per worker.  Now that the workforce is declining back to a more sustainable 49% we think we are in a depressed economy.  Yet many of us look back on the 1950-1970 period as a time of relative stability and comfort despite the fact that true unemployment per capita was 10% higher back then!  People valued their jobs.  They worked harder, served better, and produced more.

Not only did we over employ ourselves during the Exuberance, we also over spent.  We over spent our time away from our children.  We over spent on our children.  We over spent on our pets, our cars, and our gadgets.  We bought over priced, over sized homes with practically no money down.  And we filled our credit cards to the max in anticipation of the next inevitable pay raise.  Average credit card debt reached $5,500 per card in 2009, and has come down only a bit as a result of the Great Correction to a slightly more modest $4,700 per card.  The economy of the Great Exuberance could only be maintained through excess consumerism.

We weren’t the only ones who overspent though.  The US government did the same thing.  In the Exuberance, the US government enjoyed record income from taxation, and they spent significantly more than they received.  Our government created a greater national debt during and shortly after the Exuberance than since World War II.  This was propogated by both Republicans and Democrats alike.  The national debt has now exceeded the GDP for only the second time in U.S. history.  In fact, our government continues to grow debt in the hope that they can recover the economy and get back to the Great Exuberance.

The message here is that we need to stop crying over the economy and get accustomed to it.  This is the normal economy folks.  We once lived in a balloon and the balloon has popped.  The economy will no longer guarantee us a job, or a house, or a 401K.  We need to earn those things through hard work, creativity, and money management.  We need to cut back and save, because we cannot afford and should not have an economy like the Exuberance.  If you are thinking of buying something in anticipation of your next big raise you shouldn't buy it.  And, if you are waiting for a return of the Great Exuberance you will surely be disappointed.