Over the last 18 months, Americans over age 55 have suffered a reversal in their capital that has not fully registered psychologically. They will not be able to afford a comfortable retirement. This was true 18 months ago, just less obvious. Very few Americans enjoy a combination of private pensions, annuities, and Social Security payments sufficient to fund what Social Security says retirees need: at least 70% of their pre-retirement income in the last year of employment. They are oblivious to this assessment on the Social Security website. - The Fed Has Destroyed Your Retirement, LewRockwell.com, March 11, 2009
Born out of America's economic crisis is the extraordinary growth of a jobless underclass numbering in the millions.
By Andy Kroll, AlterNet
October 5, 2010
Sometime in early June -- he's not exactly sure which day -- Rick Rembold joined history. That he doesn't remember comes as little surprise: Who wants their name etched into the record books for not having a job?
For Rembold, that day in June marked six months since he'd last pulled a steady paycheck, at which point his name joined the rapidly growing list of American workers deemed "long-term unemployed" by the Department of Labor. In the worst jobs crisis in generations, the ranks of Rembolds, stranded on the sidelines, have exploded by over 400% -- from 1.3 million in December 2007, when the recession began, to 6.8 million this June. The extraordinary growth of this jobless underclass is a harbinger of prolonged pain for the American economy.
This summer, I set out to explore just why long-term unemployment had risen to historic levels -- and stumbled across Rembold. A 56-year-old resident of Mishawaka, Indiana, he caught the unnerving mix of frustration, anger, and helplessness voiced by so many other unemployed workers I'd spoken to.
"I lie awake at night with acid indigestion worrying about how I’m going to survive," he said in a brief bio kept by the National Employment Law Project, which is how I found him.I called him up, and we talked about his languishing career, as well as his childhood and family. But a few phone calls, I realized, weren't enough. In early August I hopped a plane to northern Indiana.
In job terms, my timing couldn't have been better. I arrived around lunchtime, and was driving through downtown South Bend, an unremarkable cluster of buildings awash in gray and brown and brick, when my cell phone rang. Rembold's breathless voice was on the other end.
"Sorry I didn't pick up earlier, man, but a friend just called and tipped me off about a place up near the airport. I'm fillin' up my bike and headin' up there right now."I told him I'd meet him there, hung a sharp U-turn, and sped north.
Twenty minutes later, I pulled into the parking lot of a modest-sized aircraft parts manufacturer tucked into a quiet business park. Ford and Chevy trucks filled the lot, most backed in. Rembold roared up soon after on his '99 Suzuki motorcycle. Barrel-chested with a thick neck, his short black hair was flecked with gray, and he was deeply tanned from long motorcycle rides with his girlfriend Terri.
"They didn't even advertise this job," he told me after a hearty handshake.Not unless you count the inconspicuous sign out front, a jobless man's oasis in the blinding heat: "NOW HIRING: Bench Inspector."
His black leather portfolio in hand, Rembold took a two-sided application from a woman who greeted us inside the tiny lobby. He filled it out in minutes, the phone numbers, names, dates, and addresses committed to memory, handed it to the secretary, and in a polite but firm tone asked to speak with someone from management. While we waited, he pointed out the old Studebaker factories in a black-and-white sketch of nineteenth century South Bend on the wall, launching into a Cliffs Notes history of industry in this once-bustling corner of the Midwest.
A manager finally emerges with Rembold's application in hand. Rembold rushes to explain away the three jobs he had listed in the “previous employers” section -- stints at a woodworking company, motorcycle shop, and local payday lender. They’re not, he assures the man, indicative of his skills; they're not who he is. You see, he rushes to add, he's been in manufacturing practically his entire life, a hard and loyal worker who made his way up from the shop floor to sales and then to management. That kind of experience won't fit in three blank spots on a one-page form. Unswayed, the manager thanks him formulaically for applying.
If the company's interested, the manager says -- and it feels like a kiss-off even to me -- they'll be in touch, and before we know it we’re back out in the smothering heat of an Indiana summer. Rembold tucks his portfolio into one of the Suzuki's leather saddlebags.
"Well, that's pretty standard," he says, his tone remarkably matter-of-fact. "At least I got to talk to somebody. You're lucky to get that anymore."
A Perfect Storm Hits American Labor
The numbers tell so much of the story. The 6.76 million Americans -- or 46% of the entire unemployed labor force -- counted as long-term unemployed in June were the most since 1948, when the statistic was first recorded, and more than double the previous record of 3 million in the recession of the early 1980s. (The numbers have since dipped slightly, with a total of 6.2 million long-term unemployed in August.) These are people who, despite dozens of rejections, leave phone messages, send emails, tweak their cover letters, and toy with resume templates in Microsoft Word, all in the search for a job.
Not counted in this figure are so-called "discouraged workers," including plenty of former searchers who have remained on the unemployment sidelines for six months or more. In August of this year, 1.1 million Americans had simply stopped looking and so officially dropped out of the workforce. They are essentially not considered worth counting when the subject of unemployment comes up. Nonetheless, that 1.1 million figure represents an increase of 352,000 since 2009. In effect, the real long-term unemployment figure now may be closer to 7.5 million Americans.
So who are these unfortunate or unlucky people? Long-term unemployment, research shows, doesn't discriminate: no age, race, ethnicity, or educational level is immune.
According to federal data, however, the hardest hit when it comes to long-term unemployment are older workers -- middle aged and beyond, folks like Rick Rembold who can see retirement on the horizon but planned on another decade or more of work. Given the increasing claims of age discrimination in this recession, older Americans suffering longer bouts of joblessness may not in itself be so surprising. That education seemingly works against anyone in this older cohort is. Nearly half of the long-term unemployed who are 45 or older have "some college," a bachelor's degree, or more. By contrast, those with no education at all make up just 15% of this older category.
In other words, if you're older and well educated, the outlook is truly grim.
As for the causes of long-term unemployment, there's the obvious answer: there simply aren't enough jobs. Before the Great Recession, there were 1.5 workers in the U.S. for every job slot; today, that ratio is 4.8 to one. Put another way, with normal growth instead of a recession, we’d have 10 million more jobs than we currently do. Closing that gap would require adding 300,000 jobs every month for the next five years. In August 2010, the economy shed 54,000 jobs. You do the math.
Worse yet, if you imagine five workers queued up for that single position, the longer you're unemployed, the further back you stand. Economists have found that long-term unemployment dims a worker’s prospects with each passing day.
"This pattern suggests that the very-long-term unemployed will be the last group to benefit from an economic recovery," Michael Reich, an economist at the University of California-Berkeley, told Congress in June.But when you consider the plight of the long-term unemployed, don’t just think jobs. The 2008 recession was a housing-driven crisis, thanks to the rise of subprime mortgage lending, government policy, and greed. As a result, 11 million borrowers -- or nearly 23% of all homeowners with a mortgage -- now find themselves "underwater": that is, owing more on their mortgages than their houses are worth.
Negative equity at those levels creates what Harvard economist Lawrence Katz calls a "geographic lock-in effect," stifling jobs recovery. Typically, American workers are a mobile bunch, willing to bounce from one city to the next for new jobs, but not when homeowners are staying put to avoid selling their underwater houses for a loss.
Another factor in the explosion of long-term unemployment lies in a shift away from temporary layoffs. In the recessions of 1975, 1980, and 1982, 20% of unemployed workers had been only temporarily laid off; as of August of this year, just 10% had. In their heyday, automakers and steel companies laid off workers as demand dipped, but backstopped by powerful labor unions, those workers were regularly recalled as demand and production revved up again. No more. Now, if you’re long-term unemployed, you’re undoubtedly trying to find a new job with a new employer, a more daunting process. Add it all up and you have Rick Rembold.
"Feast or Famine" in RV Land
Rembold calls himself a Democrat -- "not the peace sign, hit-the-bong type," he hastens to add, but "a tear-off-your-head-and-shit-down-your-neck Democrat."He can't stomach Glenn Beck or talk radio here in the Land of Limbaugh, and with equal zeal he watches MSNBC's Rachel Maddow and FX's "Sons of Anarchy," a gritty, violent series about outlaw motorcycle gangs.
It was a Friday morning, and we were in Rembold's kitchen, drinking coffee and talking politics. He wore jeans and a black polo shirt, and paced as he spoke. Ideas and frustrations poured out of him like water from an open spigot; the man had a lot on his mind. The night before, I had asked him to show me around the area, especially the economic engine that sustains it: the recreational vehicle, or RV, industry. Once the coffee ran dry, we piled into my car and set off.
Cities such as Elkhart and Middlebury and Mishawaka and Wakarusa are the cradle of the RV industry. Headquartered here are major manufacturers like Jayco and Forest River. At its peak, northern Indiana churned out three-quarters of all RVs on the road -- motor homes and fifth-wheels, pop-up campers, travel trailers, and toy haulers. Producing them was grueling work, but you could fashion a middle-class lifestyle out of what it paid.
"Workin' in the RV industry, they'll work you to death," Rembold said. "People would literally be sprintin' from one place to the next with power tools in their hands."Then came "the Panic of '08," as one RV salesman put it to me. Teetering banks choked off consumer lending as credit markets froze. The downturn pummeled the industry. In 2009, sales of fifth-wheels, a smaller trailer you hitch to a truck or SUV, plummeted by 30%, travel trailers by 23.5%, campers by 28%. Manufacturers like Jayco, Monaco Coach, and others collectively laid off thousands, and the region's unemployment rate spiked by more than 10% in a year.
When a newly elected Barack Obama arrived in Elkhart in February 2009 to tout his stimulus plan, the jobless rate was 15.3%; a month later, it reached 18.9%, more than twice the national rate. At one point, Elkhart County, with a population of 200,000, was shedding 95 jobs a day.
In the 1990s and first years of the new century, RV manufacturers couldn't hire enough workers. They ran ads in regional and national newspapers looking for more bodies.
"We couldn't even get people to drive over from South Bend to work in Elkhart," a sales rep for Jayco told me.By the time I arrived, though, the industry had left its feast years, hit the famine ones fast, and was showing the first signs of crawling back. Driving through Middlebury, a town of 3,200 east of Elkhart, I saw a few carrier trucks hustling in or out of plants, some full employee parking lots, and rows of gleaming new RVs dotting the green landscape like herds of boxy cattle.
Whether the industry will ever fully recover, however, is unclear. The manufacturers I spoke to were optimistic about future sales.
"Despite the logic of what's going on in the economy, the buyers are still there," said Jerimiah Borkowski, a spokesman for Thor Motor Coach.But a 2009 analysis by Indiana University's Business Research Center projected that by 2013 annual RV shipments still won't have returned to their 2006 peak.
"I personally don't think it'll ever rebound to pre-2008 levels," says Bill Dawson, vice president and general manager of Clean Seal Inc., a South Bend-based supplier of parts to the RV industry.Dawson points to industry contractions -- Thor's $209 million acquisition of Heartland RV, the Damon Motor Coach-Four Winds merger, as well as numerous factory closings -- and says, "Fewer players mean fewer units and fewer people making them."
Rembold knows the RV industry's ebb and flow all too well. He's lived in its shadow for the majority of his working career, including 18 years with Architectural Wood Company (AWC), an Elkhart-based manufacturer of wood products used to outfit RVs and conversion vans. He's made handcrafted tables, faceplates, valences, and overhead consoles, usually from oak or maple, finishing them with the gloss that gives Kimball grand pianos and Fender guitars their shine.
But by the 1990s and 2000s, his line of work looked to be headed the way of the 8-track tape. The conversion van industry was sinking. RV manufacturers had begun replacing wood with cheaper plastics and vinyl-wrapped plywood. (At an RV show we visited, Rembold could step inside a vehicle and determine by smell alone if the manufacturer used the real thing or not.) Orders plummeted at AWC. By early 2006, the company's financial health was so dire that the owner, a good friend of Rembold's, let him go. A few years later, the company itself folded.
Rembold then caromed from one job to the next: selling used cars and motorcycles, driving a semi truck, working behind six inches of bulletproof glass as a teller at Check$mart. He briefly ended up back in RVs, supervising employees sewing tents for campers, and then, last winter, temped at a struggling wood shop. That was his last job. After the holidays, he was never called back.
Like millions in his predicament, Rembold knows his chances of finding a decent-paying job doing what he loves decrease with each temporary, non-manufacturing job he’s taken. What doesn't fit on a resume -- and so frustrates him most -- is his adaptability, if only he could convince an employer of it. College degree or not, certification or not, he insists, he's always adapted to new settings.
"Could I do construction? Hell, yeah, I could do it. I could measure in metric, in standard; I'd correct cutting mistakes, do it all. I just can't get anyone to let me do it."As we talked, the RV plants gave way to lush farmland and we found ourselves driving through Amish country, sharing quiet two-lane roads with horse-drawn buggies. By early afternoon we rolled into the town of Topeka (pop. 1,200), past the Seed and Stove store and the Do-It Better hardware shop. Then Rembold's cell phone buzzed, a rare break in the conversation. It was his daughter, Angie, 28, the youngest of his three kids.
He listened, then yanked off his sunglasses. "You what?"Angie managed the Check$mart in Goshen, the check-cashing outfit Rembold once worked for, and she was good at her job, Rembold had told me earlier. Now she was agitated, talking so loudly that I caught bits and pieces of the conversation over the din of the radio. Something about a bonus owed that she didn't receive. When Rembold abruptly hung up, he muttered, "Jesus H. Christ."
Later, over lunch at what looked to be Topeka's lone diner, he explained that Angie planned to quit her job over the unpaid bonus. After a full morning telling me about the nightmare of being out of work, he looked stunned.
"You'd think she'd have learned from my situation. I don't think she realizes how her life is going to change."The Trauma of Long-Term Unemployment
It’s hard, even for the long-term unemployed, to grasp just how drastically life can change without work. Studying past recessions to discover just what does happen, researchers often focus on the collapse of the steel industry in Pennsylvania in the late 1970s that would turn a once-thriving region into a landscape of shuttered factories and ghost towns. Eighty thousand people worked in steel in the 1940s; by 1987, 4,000 remained.
In one study, male Pennsylvania workers with high seniority experienced a 50% to 100% spike in mortality rate in the first year after job loss. The life expectancies of those laid off after age 40 decreased by one to one-and-a-half years. In the long run, these laid-off Pennsylvanians suffered a 15% to 20% reduction in earnings. Those hardest hit in terms of lifelong earnings, economists found, were not low-skilled laborers or highly skilled wealthy elites, but workers who had managed to forge a middle-class lifestyle.
Suicide rates also increase, researchers have found, when unemployment rises. (In Elkhart County, near where Rembold lives, suicides exceeded the annual average by 40% last year.)
The 1980s recession in Pennsylvania was no outlier either, economic researchers have discovered, and the effects of long-term unemployment spread well beyond directly afflicted workers. In the short run, for instance, a child whose parent loses his or her job is 15% more likely to repeat a grade year in school, according to University of California-Davis economists Ann Huff Stevens and Jessamyn Schaller. This is especially true for children with less-educated parents.
Over their lifetime, the children of jobless fathers earn, on average, 9% less each year than similar children without laid-off dads, and are more likely to receive unemployment insurance and social welfare support at some point in their lifetimes. New research also suggests that the children of laid-off parents may have lower homeownership rates and higher divorce rates.
"I'm Not Competing With Some College Kid"
In the early evening, Rembold and I holed up in his office, a small room off the main hallway with a computer, two desks, and countless framed photos. Rembold clicked open a folder on his Internet browser labeled "Careers" and walked me through his daily online job-hunting routine. He checks half-a-dozen job boards regularly, though openings tend to pay only in the $8- to $10-an-hour range. He rejects most of those out of hand.
"Wouldn’t that be better than no job at all?" I ask.Rembold gnaws on the question.
"I can't afford my home at $8 or $10 an hour," he finally replies.Right now, he’s getting by on unemployment checks, a small inheritance from his mother that's rapidly dwindling, and loans from family members. Still, he'd rather keep trolling the job boards in the hopes of finding something offering a living wage.
"I've got a mortgage to pay, for Christ's sake," he told me.The few openings he sees with good pay, however, involve odd hours, dusk-to-dawn shifts that would mean he'd almost never see Terri, whose schedule at an aluminum company in Elkhart is early morning to mid-afternoon.
And then, under the dollar signs lurks something else: self-respect. Unlike his father, Rembold never went to college, and doesn't consider himself too good for service-sector jobs. But he visibly agonizes over the fact that, as a 56-year-old man with decades of experience, he's competing with people half his age for low-wage jobs. After all, as a machine operator fresh out of high school at White Farm Equipment, he earned $8.64 an hour. That was 1976. Adjusted for inflation, that's equivalent to $42.42 today. No wonder the man's reluctant to flip burgers or trim hedges for $9 an hour.
His friends have suggested selling his condo and moving somewhere smaller and cheaper, maybe renting for a while, but that's the last thing he wants. It’s that self-respect again. He's already sold off one motorcycle and various musical instruments, and he and Terri now skip the big vacations that were part of their past life. Which isn't to say that Rembold currently lives like a monk. He still has the big screen in the basement, the DVD collection, the video-game systems for when the grandkids visit, a life's worth of possessions from decades of earning good money.
"Why should you have to give up your home?" he wanted to know. "It's so unbelievable to me that I don't even want to think about it. I'm in denial."A Lost Generation?
What's to be done for people like Rick Rembold? As in most economic debates, the answer to this question divides economists and policymakers. On the left are those who lobby for more aid to jobless Americans, including another extension of unemployment insurance beyond the present cut-off date of 99 weeks. (In normal times, laid-off workers once got 26 weeks of unemployment insurance.) Some Democrats in the Senate had hoped to extend unemployment insurance by another 20 weeks up to 119 weeks, an effort spearheaded by Senator Debbie Stabenow (D-Mich.) that ultimately failed last week in the face of Republican opposition. That same camp supports a one-time “reemployment bonus,” a lump-sum payment that unemployed workers would receive to reward them for finding a new job and leaving the unemployment rolls.
Another idea gaining traction in policy circles is "wage insurance," in which the government would supplement the income of workers rehired at lower-paying jobs. Consider Rembold who, in his prime, earned $25 an hour. He says can't live on a $10-an-hour job, but if that were to become $12 or $15 an hour, thanks to a government subsidy, he'd be much more interested.
More conservative voices believe cutting jobless benefits -- a bitter pill, to be sure -- will force people back into the workforce. The Rembolds of America will then scramble harder and take those low-wage jobs faster. Of course, those who can't find work at all will be left adrift with no safety net. What's more, the cost of such cuts to taxpayers might actually prove higher, economists note, because without those benefits the jobless might instead apply for disability or other support programs and give up the search altogether.
Ideally, of course, employers and governments should avoid widespread layoffs altogether. One option sometimes suggested would be a "work-share" program. Imagine a factory of 100 workers with a boss looking to cut costs. Instead of laying off 25 workers, he would reduce all of his workers' hours by 25%. The government would then step in to fill the earnings gap. Think of it as the equivalent of collecting unemployment before you're laid off, a preventive measure to avoid the trauma -- to income, health, family -- of job loss.
None of this is likely to happen soon which is little consolation for the long-term unemployed like Rembold. Unfortunately, there are few proven solutions to their situation. Job retraining programs for unemployed workers are all the rage these days, touted by Education Secretary Arne Duncan, Treasury Secretary Tim Geithner, and President Obama as a transition to a new line of work. But a 2008 study commissioned by the Labor Department found minimal-to-no gains for 160,000 workers who went through retraining, concluding that the "ultimate gains from participation are small or nonexistent."
In the end, facing an economy that may never again generate in such quantity the sorts of "middle class" jobs Rembold was used to, what we may be seeing is the creation of a graying class of permanently unemployed (or underemployed) Americans, a genuine lost generation who will never recover from the recession of 2008.
As Mike Konczal and Arjun Jayadev of the Roosevelt Institute, a left-leaning think tank, recently wrote, unemployed workers today are more likely to abandon the workforce than find work -- something never before seen in four decades' worth of labor data.
"These workers need targeted intervention," they concluded, "before they become completely lost to the normal labor market.""All I Need Is One Chance"
I first noticed Rembold’s tic on Sunday, my last day in Indiana. Out of nowhere, without provocation, he'd suddenly say things like "Man, I just need a job," or "All I need is a chance," or "I wanna work, make stuff with my hands." He’d been filling the lulls in our conversations with these little outbursts, symptoms, I assumed, of the worry and anxiety that never left his side. Which is why I called a few weeks after my visit, hoping for good news.
And there was, after a fashion. Angie, his daughter, had ended up sticking with Check$mart, much to his relief. But for him, the leads were sparser than ever.
"There's this neighbor here,” he said, “her son's a shift manager at the Walmart, so he's gonna see what they might have."He also mentioned an electronic wire and cable manufacturer with openings in Bremen, a half-hour south. He'd recently applied there for the third time this year. This time around, he went on, he planned to march in and demand the interview he’d never gotten.
"I mean, what's it take to get in to see someone there?" he asked me.Rembold doesn't have time on his side. Unlike the now-famous "99ers," the folks who received nearly two years' worth of unemployment benefits, his will expire sometime this winter, short of the 99-week mark. He's not sure what he'll do by then if he can't find work. Maybe take one of those $8-an-hour jobs after all. For now, though, he's just checking the job boards each morning, shipping off resumes and cover letters, firing up the Suzuki, chasing leads.
I asked if he still had any hope left that something good would happen.
"I don't know," he replied. " 'Course if ya don't go, ya don't know."Andy Kroll, an associate editor at TomDispatch, is a reporter for Mother Jones magazine. He lives in Washington, D.C. To listen to him discuss the geometry of delusion in the Ponzi Era on the latest TomCast audio interview, click here, or download it as a podcast by clicking here.
March 11, 2009
In early February, President Obama was looking for a place to symbolize the recession. He wanted to rally support for his proposed $800 billion bailout of the economy, a bailout that he admitted would send the Federal government's annual deficit to $1.7 trillion in fiscal 2010.
He chose Elkhart, Indiana, which advertises itself as the recreation vehicle capital of America, and hence the world. Elkhart's economy has collapsed. There is 15% unemployment and no hope in sight.
For years, the RV industry grew. The scene in About Schmidt was representative. The retired middle manager bought an RV for his retirement. Then his wife died. He went out on the open road by himself. He went back to his home town. Nothing remained of the places he remembered.
This industry is today representative of the profound economic breakdown we are experiencing. This is not business as usual. The industry is close to collapse.
In 2005, the Indiana Business Magazine ran a story:
"On a roll? What's behind the dramatic growth of Indiana's RV industry? Baby Boomers buying vs. higher fuel costs." It reflected the final year of Greenspan's decade-long bubble economy. Like California housing, the RV industry seemed to levitate high above economic rationality.
It would seem like the past few years should have been tough on the recreation-vehicle business. The economy was in recession for a time and sluggish even longer, and gas prices have been moving ever-upward, which would seem like a poor climate for selling expensive discretionary items that don't exactly sip gas. Yet the RV industry – which is centered in Indiana – in recent years has enjoyed dramatic growth. And as sales have grown, Indiana's share of the business has increased as well.These words now seem as realistic as a real estate salesman's promise to some young couple that paying ten times annual income for a house was a good bet. The home would appreciate.
The article reported that in 2004, RV manufacturers shipped 370,000 units. Of these, 236,000 were made in Indiana. The article quoted Dennis Harney, executive director of the Recreation Vehicle Indiana Council and the Indiana Manufactured Housing Association.
"The RV industry directly employs nearly 20,000 people and indirectly employs another 20,000," he says, adding that most of the jobs pay well. "The RV industry enjoys a lack of competition from foreign producers – very few RVs are imported from competing nations. Although we're a quiet industry and the business is distributed among a number of manufacturers, there are many states that would relish the opportunity to have an industry like this."Not these days.
He went on to say,
"I think it's a critical industry for the state that's enjoying growth. I think the future is very, very bright for the industry."
Fast forward to November 2008. The RV Dealers Association sent out a press release in the form of a letter to President-elect Obama. It was a plea for a government bailout.
There are an estimated 12,332 RV-related businesses in the nation with combined revenues of $37.5 billion in 2006, including a combined payroll of nearly $5 billion for American workers in the manufacturing, retail and service sectors – employment which, as with boating, totals some 150,000. One out of every 12 American households owns an RV – a category that ranges from inexpensive pop-up tent campers to large, self-propelled motorhomes. Today, there are 8.5 million RVs in operation.It noted that Elkhart, Indiana, had the highest unemployment rate in the nation. It still does.
Banks had ceased lending on RVs, the letter said. I wonder why. Here is a product whose largest market share is people age 55 and older. The recession is cutting into their income. The falling stock market is cutting into their retirement portfolios.
Consider the economics of an RV. Like any vehicle, RVs depreciate rapidly. They are consumer goods. They are not capital goods.
They cost a lot to operate. Gasoline is only part of it. There are maintenance expenses. Also, they suffer from competition from the used RV market.
No one needs an RV. Anyone can get into a car and drive to a vacation spot. He can pay retail for a motel, eat fast food, and fish for two weeks. Then he can go home. The cost will be far less than the depreciation of an RV plus 6 miles per gallon. The economics of the RV have little to do with efficiency. It has to do with lifestyle.
There lies the rub.
A Lost Lifestyle
Over the last 18 months, Americans over age 55 have suffered a reversal in their capital that has not fully registered psychologically. They will not be able to afford a comfortable retirement.
This was true 18 months ago, just less obvious. Very few Americans enjoy a combination of private pensions, annuities, and Social Security payments sufficient to fund what Social Security says retirees need: at least 70% of their pre-retirement income in the last year of employment. They are oblivious to this assessment on the Social Security website.
Today, about half of all workers are covered under an employer-sponsored pension, and many people are not saving as much as they should. While Social Security replaces about 40 percent of the average worker's pre-retirement earnings, most financial advisors say that you will need 70 percent or more of pre-retirement earnings to live comfortably. Even with a pension, you will still need to save. If you will not have a private pension, you will need to save more – and start saving sooner.
Yet throughout Greenspan's bubble economy, the savings rate of American households fell, going negative in 2005. The boom fooled Americans who owned stocks that they were getting richer. They weren't. They were merely benefitting from the greater fool theory of investing. That theory has brought down the real estate bubble. There will be further declines. It has ended the stock market mania. And it has just about shut down Elkhart, Indiana.
Americans have not yet recognized what has been done to them by the Federal Reserve System and the highly leveraged banks and hedge funds that thought the good ship Effortless Wealth had come into port. The hot-shots did not understand Ludwig von Mises' theory of the business cycle as the product of central bank monetary inflation. They never saw it coming.
Now the investors who believe the same dream, but without multimillion dollar severance deals, have seen their dreams called into question.
They have not yet dumped their stocks. They have just stopped buying as many. The fall of 55% by the Dow and the S&P 500 was not accompanied by a huge sell-off. The decline has been one of dribbling away. The dreams of would-be retirees have not yet been smashed. They have merely dribbled away. The crash has not yet come. It will.
Stages of Deception
First, there is a dream: easy prosperity. This dream is funded by fiat money. Next, there is a boom: easy prosperity. This boom is funded by fiat money. Next, there is reality: the stabilization of fiat money. Next, there is recession: the end of the dream.
In the conventional scenario, there is recovery. But recovery since Greenspan arrived as chairman in October 1987 has always been based in more fiat money. That was his solution to the 22% one-day fall in the stock market in 1987. That was his solution to Bush I's recession in 1991. That was his response to the recession of 2001 and 9-11. Again and again, fiat money solved the problem. It brought back the recovery.
It is not working this time. The federal funds rate is at 0%. The economy is still falling. The Federal deficit is headed toward $2 trillion a year. No recovery is visible.
When recovery comes, it will be accompanied by price inflation on a scale never seen in peacetime America. Those who rely on pension payments and annuities will see their income shrink. They will be the primary victims.
The target market of the RV industry will be the victims of the recovery's familiar solution: fiat money. They will remain the victims for the foreseeable future.
The people at CNBC do not see this yet. The high-paid hot shots on Wall Street who lost their jobs may suspect that the gravy train has gone off the rails, but what can they do about it? They are trained in high finance, and high finance is now an appendage of the Federal government. The era of salaries has replaced the era of stock options and bonuses. The Democrats have vowed that the old days will not return. I don't think the Republicans are likely to run on a platform to bring back the world that ended in 2008.
When they run on a platform to end Medicare, I will be impressed. In 2016 or 2017, and maybe earlier, Medicare goes into the red. At that point, political reality will meet actuarial reality. There will be an inter-generational pile-up. The geezers will lose. They won't have the votes in Congress.
People over 55 today will spend their golden years in the equivalent of Elkhart, Indiana.
Drive up Main Street in your town. All over America, Main Street – where people drive at 4 p.m. – is the same: Lowe's, Home Depot, Office Max, Office Depot, Wal-Mart, McDonald's, Burger King, Taco Bell, Chili's, and T.G.I. Friday. Wal-Mart is doing well. It is the place that sells what people really need, and it sells it cheap. McDonald's stock price has held up. Like Wal-Mart, it sells cheap.
Fast food saves time and is addictive: high fat. People want it, and it does not cost much. But yuppie restaurants that sell lifestyle are headed for trouble. People don't have to go to them. They offer atmosphere, but it's expensive. It's not like the neighborhood tavern, which rests on friendship. It's ersatz community. Television screens with no sound are all over the walls, often tuned to different sports events. Silent sports are ersatz sports.
If I were advising a fund manager on what to sell, it would be any company whose income relies on restaurants with silent TVs. There are no TVs at McDonald's and Taco Bell. Those places make it on volume. There is no community. They get you in and move you out. Only the playgrounds for children keep anyone there for long. Nobody takes his wife to a fast food restaurant for a romantic evening. He may take her so that she can get a break from the day's routine. That incentive will keep fast food restaurants solvent after the yuppie restaurants have closed.
Liquor sales keep yuppie restaurants going, but liquor by the drink is expensive. If someone wants to drink, he can do it at home cheaper.
The crunch will come. The yuppie restaurants have survived so far, but they will face the reality of discretionary income. It's shrinking, and it's beginning to go into savings. The more fearful Americans become, the higher the percentage of discretionary income they will save.
We have not yet seen real fear. We will. We have not yet seen Main Street in the condition that it has become in Elkhart, Indiana. We will.
President Obama told Elkhart that he had not forgotten the city. I suspect that by now, he has. The photo op is over. The bailout was passed. The economy is falling. The least of his concerns – and yours – is the fate of a city that bet its future on the RV industry.
In every recession, there are permanent victims. The RV industry is the poster child as this recession's permanent victim. The industry is finished. Its target market – retirees and people who dream of becoming retirees – is also a permanent victim. The dream of freedom, permanent income, no job, no kids at home, and the open road was nice while it lasted, but it's over for most people. As they die or get shipped off to retirement homes, their children will sell the old folks' RVs for pennies on the dollar. The supply of used RVs will be strong for the next decade.
Elkhart, Indiana is the symbol of the boom gone bust.
If life on the road has been your dream ever since Then Came Bronson, find a new dream. As with Bronson, the show has been canceled.
Gary North is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.