Recognition Phase

This unsettling summer has been all about recognition. More of us have been coming to terms with the ugly reality that our economic problems aren’t just a transitory, cyclical phase. Their embedded and will take years of sacrifice to overcome. As a nation, we’re not all the way there yet in terms of our reality check, held back by the dumbed down political discourse whose foundation rests in telling Americans we’re better than everybody else and that simple bromides like tax cuts and reduced government spending are all that’s needed to turn things around.  Or maybe it’s tax subsidies for green technology that will do the trick.

Folks who poo-pooed the “Era of Less” a year ago begin to realize that the problem is us. We spent too much on things we didn’t need and really couldn’t afford with (borrowed) money we didn’t have. Not only did we let our government do that, we did it ourselves.  As we cope with deleveraging, we realize we are not in a great competitive position to earn our way out of this jam since workers in emerging markets can do what we do here and get paid a lot less to do it.

Oh yes, we’re entrepreneurial and creative, and many multinational corporate behemoths will continue to be based here. The innovators and CEO suites can rake in the big bucks—but the products will either be made elsewhere at cheaper cost or be made here at much lower wage rates than in the past. Most Americans confront making less and doing with less, which in the end undercuts the entire economy and places painful limits on our way of life. That also means reduced tax revenues which hinders what government provides—including Social Security, healthcare, defense, and infrastructure.

The optimists talk about the “resiliency” of our economy and how America has always bounced back. But for now that’s just empty fat-and-happy talk. The next decade or more will be extremely painful. Pending government retrenchment will result in hundreds of thousands of fewer jobs, not only in the public sector, but as a result of lost government contracts, notably in the defense industry. In the private sector, we will continue to see wages and benefits erode as U.S. industry gains a more competitive footing against the rest of the world. Our consumer based economy shrinks, simply because people have less to spend and realize they need to save more to ensure better futures. We’d be fools to think we can depend on disappearing pension programs or diminished Social Security in retirement.

At some point, I hope sooner than later, we’ll realize that government and private industry will need to pool resources and brainpower to rebuild a country, badly in need of rebuilding—both its industry and infrastructure—in order to put people back to work and become competitive again. That will mean becoming more efficient and less energy wasteful, and concentrating resources in the places that can produce the most jobs—our global gateway cities and interconnected regional hubs.

In the meantime, our real estate markets will go sideways along with everything else. You’ll make modest money if you can lease up your properties, but don’t expect much appreciation. It’s the Era of Less, not more.