Living with less

I used to wonder how the people around me could afford the lifestyles they were living -- two new cars in the drive, often Lexis or BMW or Mercedes brand. Kids wearing designer clothes and cashing out with the newest X-Box or Wii systems each holiday. Disney World trips, European vacations. I decided that I just had to ignore it and live my life my way. I made up a fantasy in which everyone else was overextended on car leases and home equity lines of credit with huge penalties for early repayment. And who knows? Maybe the fantasy was true. I had to laugh when gas prices soared and it looked for a while as though flashy SUVs would be impossible to re-sell. My 11-year-old minivan might not impress anyone at the village intersection, but it sure got better gas mileage.

The world has changed since those heady luxury days -- which were the norm just a year ago, really, although the warning signs were upon us by then. I don't believe that we are now in a cyclical downturn. It's more permanent. I don't think we'll ever forget the pain from the risky mortgages that has essentially gutted our financial system in these past few months. We won't return to the long extensions of credit, not in our lifetimes, anyway. This weekend, writing for the New York Times, Peter S. Goodman has uttered the unthinkable for people who are holding out for the return of the good times. He quotes Peter Schiff, president of Euro Pacific Capital, a Connecticut-based trading house.

Our standard of living must decline to reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now will our sick economy ever recover.

Reckless consumption, as Schiff points out, is only half the problem. For the other half, we need to return to my good friend Larry Summers, who is now director of President-elect Barack Obama's National Economic Council. Summers likes to point out that globalization lifts the standard of living for people in poor but industrializing countries. He also says that means that rich countries' living standards will fall. This frankness is part of what makes Larry Summers so unpopular -- but of course, he is right. If he would only temper his doomsaying for the Pittsburgh steelworker a little, he might be heard by more people instead of infuriating them.

In any case. Off the Summers soapbox. Our standard of living has been falling for decades, we have just been in denial about it. We have been able to deny it because...

1. It has been happening to specific industries -- manufacturing, mostly -- of which many of us are not members. 2. Spouses have entered the workforce since the 1970s, so the drop in the living standard doesn't seem so severe. Household income has been maintained, more or less. 3. We've been living on credit, like home equity loans, and higher home values to finance retirements and college expenses.

Now the pain is spreading and eroding 1 and 2. The loss of one job in most households makes the lifestyle unsustainable. And the bubble has burst for No. 3. I can't see any way out but to embrace a new way of life.

Globalization pauses to take a breath

Today's New York Times has a well-displayed story about how rising fuel prices are making it less attractive to outsource jobs overseas. Actually, New York Gov. David Paterson mentioned this in a speech last week (6th paragraph), predicting hopefully that companies could return to blighted upstate New York to be closer to their American customers. I think Paterson is grasping at any sign of prosperity, and Times writer Larry Rohter seems to agree (see below). Still, this trend is good news for American workers, rising from a sea of bad news for many months. Here is what the Times story says in its last two paragraphs.

But a trend toward regionalization would not necessarily benefit the United States, economists caution. Not only has it lost some of its manufacturing base and skills over the past quarter-century, and experienced a decline in consumer confidence as part of the current slowdown, but it is also far from the economies that have become the most dynamic in the world, those of Asia.

“Despite everything, the American economy is still the biggest Rottweiler on the block,” said Jagdish N. Bhagwati, the author of “In Defense of Globalization” and a professor of economics at Columbia. “But if it’s expensive to get products from there to here, it’s also expensive to get them from here to there.”

It's funny that the Times would save this downbeat angle until the very end of a very long story. I think it shows that the newspaper is as eager as the rest of us for good news.

So, here is a dose, again from Rohter:

“If we think about the Wal-Mart model, it is incredibly fuel-intensive at every stage, and at every one of those stages we are now seeing an inflation of the costs for boats, trucks, cars,” said Naomi Klein, the author of “The Shock Doctrine: The Rise of Disaster Capitalism.”

“That is necessarily leading to a rethinking of this emissions-intensive model, whether the increased interest in growing foods locally, producing locally or shopping locally, and I think that’s great."

... To avoid having to ship all its products from abroad, the Swedish furniture manufacturer Ikea opened its first factory in the United States in May. Some electronics companies that left Mexico in recent years for the lower wages in China are now returning to Mexico, because they can lower costs by trucking their output overland to American consumers.

Decisions like those suggest that what some economists call a neighborhood effect — putting factories closer to components suppliers and to consumers, to reduce transportation costs — could grow in importance if oil remains expensive.

The emergence of global supply chains is one villain cited by Robert Reich in his book "Supercapitalism," which I have just finished reading. Companies have sought low wages in China, call centers in India and the like to reduce their costs, which forces their competition to do the same. American companies seek ever-higher profit margins so their investors will stick around. It does seem that we live in a hyper-fast, hyper-competitive world now.

I think it would be a good thing if globalization were to slow down. The diaspora of American jobs overseas certainly raises the living standard of people in poor countries, and that's a good thing. But it's happening so fast that individual Americans have little time to seek other options, and it can be devastating to us and our families.

I'm thinking about a narrative writers' conference I attended in Cambridge, Mass., in 2002. Larry Summers, the Harvard president who quit after implying that women aren't as smart, gave a speech applauding globalization because it helped poor countries. He chastized jouralists for overplaying the pain Americans were experiencing as a result.

I have not done the relevant content survey. But I would bet with a high degree of confidence that reading the press generally, one would find that there was almost no discussion of the benefits in terms of international trade of making goods cheaper for people to buy and therefore making people richer. And that there was relatively little discussion of the experiences of individuals who have better jobs than they otherwise would have because of the opportunities to export created in the American economy by trade agreements, in contrast to an enormous volume of writing about jobs lost. There are almost certainly tens of thousands of jobs that have been lost because of the increases in the price of steel that were imposed by trade policies in the United States nine months ago. I would be surprised if the up-close-and-personal story of a single one of those job losses has been told. In contrast, the story of pain in Steeltown has been told again and again and again.

Meanwhile, back home in Pittsburgh, my kids were being cared for by the wife of a retired steelworker, whose company had gone under, taking his pension with it. They were living hand-to-mouth. I wanted to sock Summers, but subsequent events have done it for me. It's nice when life works that way.