Last month I took a long, winding West Coast trip, partially for work and partially to see some old friends. It was…shocking. Almost without exception the old friends are having money or career troubles, in some cases catastrophically so. Most, to one degree or another, have lost the lifestyles they once saw as every well-educated American’s birthright.
These are people who expected to live the life of the 10%, if not the 1%, right through to an easy, low-stress retirement. That most didn’t make it is both scary and instructive for reasons I’ll get to in a minute. But first, some stories, with names and details changed for privacy, but otherwise true:
* Rebecca was an investment analyst right out of school, and a natural. We worked together in our late 20s and there was no doubt which of us was headed for bigger things. After a few years of promotions and big raises she took a new, more challenging job for way more money, rode it for a while in the 1990s, and then ran into one of the conflicts typical of finance and got fired — and never recovered. Today she’s divorced and working multiple crappy jobs while going on a never-ending series of interviews, trying desperately to get back the life that seemed like such a sure thing 15 years ago.
* Charles was a division head in a big regional company back in the early 1990s. A good-natured alpha male who dominated meetings and won clients over with cogent presentations, he seemed, despite a, um, complex personal life, to have unlimited options. His self-confidence and the hot market led him to go out on his own with a series of new companies. But none panned out, and now he’s working for people he might have hired back in the day, and earning less than he did 15 years ago.
* Tara and Mark ran a kick-ass (literally and figuratively) martial arts studio that by the late 1990s had hundreds of students, a dozen or so instructors and a jammed class schedule. More room meant more classes and more revenue, so during the real estate bubble they accepted a sweet-looking deal from a developer to anchor a new strip mall with a three-fold jump in space. The rent was high but manageable if a reasonable number of new students enrolled. Then a couple of instructors left, taking a sizable chunk of the student body with them, and the students that remained didn’t cover the rent. Tara and Mark lost the studio, their cars, house, and savings, and now live in a cramped apartment and teach for other studios at barely above minimum wage.
The list goes on; there were eight sets of friends on the trip, and six of them had stories with the same arc: smart, successful, overconfident, crash-and-burn. The other two were solvent but stressed.
That one or two from a sample this size would fall on hard times is statistically probable. That most end up this way is a sign of a world that has become a lot less forgiving. Back in the 80s and 90s, jobs and/or financing were everywhere and it was easy to recover from a misstep. The start-up didn’t work out? No problem, the big companies in your field are hiring. Need more money? Just tap one of the dozen pre-approved credit cards that hit your mailbox this month.
That’s not the case anymore. Very few fields are hiring, some for economic reasons and some, like publishing, because of technological change. And non-usurious credit has disappeared for all but those who don’t need it. So a mistake can take years to correct, if it’s fixable at all, and the downtime can be fatal to a middle-class lifestyle.
Austrian economics says that easy money sends false signals, leading people to make unwise decisions. Usually this is presented in terms of entrepreneurs over-expanding (thus creating “malinvestment”) and then going bust, but the same principal applies to individuals: when things are artificially easy because of low interest rates and rising inflation, we find it tempting to take big risks – because they don’t seem that big when jobs are plentiful and credit abundant. When the easy money stops flowing we end up out of work and unable to get back into our chosen fields.
This is what stage one of a depression looks like: Millions of people losing the middle-class lives they took for granted and falling several rungs into a different category – lower-middle-class, underemployed, working poor, destitute. But so far it’s been a quiet depression. If you’re working, as most people still are, life is tough but the detour feels at least potentially temporary. But lose a job and suddenly your old world and its assumptions evaporate. That’s what an increasingly large number of Americans are apparently going through right now.
Another group that isn’t represented here but must also be suffering is retirees who put away enough to live comfortably – assuming they could earn 5% a year on a bank CD. Now that the going rate is more like 0.5%, income doesn’t match outflows and the downward spiral gains momentum, as they have to eat into capital to live.
The question now is how much longer the depression stays quiet.