Where to Wait Out the Great Correction
Tired of running out of time and money? Scrimping and saving just to make ends meet?
Try moving to Harlingen, Texas. The cost of living there is only about 40% of the cost of living in Manhattan.
Here’s Real Time Economics with a report:
Obama has spoken about having the rich pay their fair share, and $250,000 is a lot of money. But to characterize those households that earn that sum as “rich” depends very much on where they live. Thanks to regional differences on costs, $250,000 does not go so far in places like New York City and Honolulu, compared with cities in Texas or Tennessee.
The Council for Community and Economic Research calculates cost of living indexes for US cities based on goods and services bought by households in the top-income quintile, which nationally covers incomes of about $100,000 and above according to US Census data.
What the data show is that the cost of living in Manhattan is 118% higher than the national average. On the other hand, a household in towns like Harlingen, Texas, or Memphis, Tenn., has a cost of living 15% less than the US average.
What the differences do mean is a New York household earning $250,000 is not nearly as “rich” or has nearly the buying power as a Memphis household bringing home, say, $150,000 a year.
You can live more cheaply in a place like Harlingen. You’re almost guaranteed to lower your spending, because there’s not much there to spend money on.
We’ve never been to Harlingen, so maybe we’re wrong, but we imagine it is a pretty slow place. Few fancy restaurants. Few theatres. Few luxury shops. Which makes it hard to part with money.
Of course this improves your cash-flow. But it also allows you the glorious privilege of doing nothing.
As our friend in Florida reminded us, most people can’t stop. Money in; money out. They have to work to pay the bills. No question of taking time off. No time to think. No time to sit still…and wait for the storm to pass.
Back in the time of the Great Depression, millions of Americans were still not completely caught up in the money economy. Many still lived on the land. They kept pigs and chickens. They tended their own gardens and “put up” their own canned goods. They cut their own wood to heat their houses. They pumped water from their own wells. Many still made their own clothes.
When the Depression came, they could hunker down and wait it out.
But today, the developed world is in a Great Correction. And it shows no sign of coming to an end. Japan is already in a slump that has lasted — off and on — longer than most marriages. Europe is headed into a slump — with half of all young people jobless in many countries. And in the US, at this stage in a typical recession/recovery cycle, the economy should be growing at an 8% rate. Instead, growth is below 2%.
Why? This is no typical recession/recovery cycle. Instead, the private sector is cutting back on debt. At the present, household debt is going down (mostly via mortgage foreclosures) at about 5% of GDP per year.
At this rate, it could take 10 years or more to get household debt down to more comfortable levels, say, around 70% of disposable income.
But the average household can’t wait 10 years for de-leveraging to do its work. Heck, it can’t even wait 2 months. Both parents work. They’ve got two cars. And two mortgages. Money in; money out. 24/7…
No garden. No firewood. No chickens. No time to wait. No time to sit still. Just bills…bills…bills…
They’ve got to work…they’ve got to earn money…they’ve got to spend…
They can’t do nothing.
They should move to Harlingen.
Not much action on Wall Street. The Dow barely moved yesterday. Oil is right at $100 a barrel. The 10-year T-note yield is still below 2%.
The Greeks are “toast,” says our colleague Chris Hunter. The Germans are fed up with them. It looks like they are going to push the Greeks into default…and out of the euro.
But the threat of a Greek default casts a shadow over all of Europe. The New York Times is on the story:
BRUSSELS — Moody’s Investors Service cut the debt ratings on Monday of six European countries, including Italy, Spain and Portugal, and became the first big ratings agency to switch Britain’s outlook to negative.
The move came a month after similar downgrades by Standard & Poor’s and Fitch Ratings. All three agencies cited the debt crisis and its ramifications for the region’s economy.
In a statement, Moody’s said the main reasons underpinning its decision were “the uncertainty over the euro area’s prospects for institutional reform of its fiscal and economic framework and the resources that will be made available to deal with the crisis.” It also cited Europe’s increasingly weak macroeconomic prospects, which it said threaten the adoption of austerity programs and the structural reforms needed to promote competitiveness.
Empires come and go. And in coming and going, they seem to be symmetrical. The way up takes about as long as the way down. The Roman Empire took hundreds of years to reach its peak and hundreds of years to go away. The Third Reich was supposed to last for 1,000 years, too. Instead, it lasted 12, with about 8 years of expansion and 4 years of contraction.
The British Empire got underway with the conquest of Scotland and Ireland. One hundred years after the Battle of Culloden, which crushed the clans and sealed Scotland’s fate, the Brits ruled half the world. But 100 years later, their empire was mostly gone…with the US having taken away the imperial crown.
America’s empire could be said to have begun with the defeat of the South in the War Between the States. Or, perhaps with the invasion of the Philippines in 1899. It peaked in the early ’70s…when US wages reached a top. Or, maybe in the ’80s, when China began to compete with it and the US shifted from a creditor nation to a debtor. Now it is on the downward slope. In a few years, China will have the world’s biggest economy. A few years later, it will probably have the world’s dominant military force.
Will the decline be graceful and dignified? Or marked by bankruptcy, hyperinflation, war and shame?
John Kagan, writing in The Wall Street Journal, doesn’t think he will like it.
If and when American power declines, the institutions and norms that American power has supported will decline, too. Or more likely, if history is a guide, they may collapse altogether as we make a transition to another kind of world order, or to disorder. We may discover then that the US was essential to keeping the present world order together and that the alternative to American power was not peace and harmony but chaos and catastrophe — which is what the world looked like right before the American order came into being.
We don’t know what will happen. But we doubt we will like it either.
Still, we’re not silly enough to think that the path to imperial decay can be blocked by our own willpower. Here’s Kagan again, delusional:
…international order is not an evolution; it is an imposition. It is the domination of one vision over others — in America’s case, the domination of free-market and democratic principles, together with an international system that supports them. The present order will last only as long as those who favor it and benefit from it retain the will and capacity to defend it.
He seems to think that if an imperial power spends more money on its military industry it will somehow resist the tides and the winds. All of imperial history argues that he’s wrong.
When an empire’s time is up…it’s up.