So, what do you think will happen next? There’s only one word in that question with more than one syllable. Such simple words are signs of ancient origins. We’ve probably always asked that question. The world is weirder and changing faster than ever. Just because it is difficult to find an answer doesn’t mean we quit asking the question. The political debates come down to one person and one ballot on one day multiplied by the number of people who care enough to vote. (And, if you don’t vote, don’t complain.) The money side of things is much more personal, affects us every day, and affects our personal finance plans. What you think will happen next isn’t as important as what you’ll do next. Welcome to my exploration.
Science is measured by whether it can make predictions. By that measure, economics is a terrible science, or at least an immature one. Now that data are more available and the consequences of actions can be seen on a global and systemic scale, old assumptions in the new science of economics are being challenged. Read, watch, or listen to some of the stories in Freakonomics and watch stereotypes fly apart. Drug dealers may only make minimum wage, but it’s sometimes their best choice. Violence and crime correlate with a decrease of lead in the environment and an increase in the availability of abortions. There may be a Nobel Prize in Economics, but young students witnessing the world are revolting against conventional wisdom, and even the doctrine taught to them in college.
Economics lag. Causes and effects are frequently separated by years or generations. A current economic boom is probably produced by policies instituted years earlier, and acted upon by people’s spending and savings habits that are influenced by previous booms and busts.
Economics are chaotic. The chaos isn’t random, but it is the mathematical definition of chaos where chaos means the system is so complex that it may be impossible to accurately predict what will happen next. Based on that success rate, economics wouldn’t be in demand; but people need plans so people will study and listen to economics news for any help they can get.
Economics may be unpredictable, but personal actions can be more certain. Spend less than you make. Invest the rest. Repeat. It isn’t a panacea. Income and expenses are not always in our control. Income can be ruled by a boss or a clientele, or a hurricane blowing through your house. Expenses can be ruled by accidents and medical bills. Income can also be ruled by the lottery and expenses can be forgiven (both with similar odds.)
Recession to recovery to recession to recovery to repetition. Recessions and recoveries are bounces around a norm that the US economy rarely settles down to. We’ve become accustomed to booms and busts, some shallow, some extreme, some regional, some national. The norm is to never sit on the norm. We’re experiencing one of the longest recoveries in US history. Guess what will happen next. Its inevitability isn’t in question, just the specific timing and magnitude. Some system studies conclude that the system is unstable, not under some overt or covert control, and will continue to experience wider swings. Higher highs and lower lows are the norm. As wild as the US economy has been, it is relatively stable compared to Venezuela’s million percent inflation, currency devaluations in Turkey, and sixty percent interest rates in Argentina.
Each recession gets pinned to a scapegoat. The housing bubble, the Internet stock bubble, the silver bubble, … Assets chase assets. People who are saving more are sensitive to where putting their money may mean saving less. So, if commodities were a bubble that burst, put the money in stocks – until they burst then put the money in housing – until it burst then put the money in commodities – and then oil drops and threatens nations so put the money in private equity or Bitcoin or some computer managed combination of the lot.
But, for people with a long enough view and enough patience and resources to let the money sit, there can be impressive gains thanks to time. Apple stock was great, then it sank, now it’s phenomenal – as long as you waited twenty or thirty years. (And I, in youthful rebellion, sold when they kicked out Steve Jobs, and never bought back in. Sigh.) Simple houses in Seattle, or where I live (and now am a real estate broker) on Whidbey Island never seemed like much until the region is ‘discovered’ and prices soar. They’ve soared to levels that are still cheap compared to the rest of the major cities on the Pacific Rim.
Recessions are temporary. So are recoveries. Lives last longer. Set a simple course to make it through each, and repeat.
Politics. Sigh. I so long for the simpler times of Watergate. Elections mattered then, too; but now they’re existential. They’re also more about wining the game than about managing the nation. And yet, whoever wins will take credit and shift blame for whatever happens the day after the election. Someone won and the market went up? They may take the credit, but the previous politician had more influence. The market went down? Blaming the previous people happens even faster.
Elections do matter. They always have. Because of elections, enough people were elected to institute policies that helped me renegotiate rather than lose my mortgage and my house. Tying today’s politics to today’s economy, however, gives too much credit to the economy’s agility. It’s isn’t that smart, maneuverable, or controllable.
And yet, the economy is due for a shift, which will probably result in a recession, which will affect the next election.
And yet, and yet, I was glad to see that my Voter’s Pamphlet arrived today. I like being able to vote (and then complain.) I almost was in this one, but work and inconvenience helped me miss a deadline. Maybe next time. Just as in economics, a big messy situation can be reduced to simple personal actions. Spend less than you make. Invest the rest. And vote.
I can feel comfortable prognosticating because I am told very few readers have the attention span to read this many words. Congratulations if you got this far.
Our economy, politics, environment, and society are all mathematically chaotic systems. Technology is changing concurrently and is faster than the rest. Making A prognostication is a silly game. Whatever happens will not happen to everyone. The news will hit the highlights and make them sound universal, but the recent news coverage of the Florida hurricane proved my point. The camera swept past piles of rubble twenty feet high. The properly ruffled newscaster described the terrible scene, and was right. But, right behind the rubble was an apartment complex that didn’t seem damaged. Houses were swept away, which is why we should respond because they are proxies for the people involved. But other houses weren’t. They’re less likely to be mentioned, except by prudent reporters and planners. But the stories of the houses and lives that weren’t damaged aren’t dramatic, so they can’t fit into a three minute news segment.
There will be chaos under heaven, and for some, the situation will be – at least acceptable, and not worth noticing, but worth living. Frugal, prudent, and prepared may be boring, but they’re also more likely to avoid the dramas that disrupt lives.
My prognostication: Live simply. It isn’t a panacea, either, but it is one of the best plans a person can personally act upon.
As for my forty year mortgage. Really? I don’t even know if we’ll have the same country in a year. Sure. I’ll take that lower rate, thank you very much.