The financial crisis that has gripped America this autumn has caused me to summon memories from long ago. Among them are a few things from my childhood, things which were taught to me by a notable member of an older generation. They make chilling commentary on our circumstances today.
When I was growing up I was fortunate enough to have guidance and mentoring from a man who came of age in the 1930s. When you hear the phrase “self made man” it is usually applied to someone that has bootstrapped his way to wealth. My mentor was self-made too, but not in that way. He was self-made in the way of self reliance. Forty years on earth have failed to show me an individual more fiercely – and effectively – independent. Many of the lessons he taught me are among those I consider most valuable even today. I will confess now that despite my admiration for him and my appreciation for what he taught me I have not applied all of his lessons equally well.
We’ll call this exceptional man Wilson.
Although Wilson had been an outstanding student and had graduated high school at the age of 16, by 1934 it was clear that he would have to forgo college in order to help support his family. He took whatever work he could get at a time when getting any work at all was damned difficult. Instead of carousing or even resting when he wasn’t doing odd jobs, Wilson taught himself to be a chemist, a pyrotechnics expert, a magician, a printer, and a radioman.
During the second World War he helped train civilians and military personnel to be properly prepared for chemical weapons attack. After the war he started his own businesses, manufacturing a variety of chemically intensive products including cosmetics and pyrotechnics. He did that while holding down day jobs with the Red Cross and the state of South Carolina. His wife Ethyl worked both out of the home and alongside him in their own businesses. By the time they were in their early fifties they had saved enough to buy a large piece of prime property and build a house on it with cash. Afterward they quit their day jobs and worked solely at their own business for the rest of their lives, selling goods that no one else made and, at times, formulas that no one else knew. Throughout their lives Wilson and Ethyl never used any sort of credit or loans to acquire anything at all. They bought what they could from income and savings, and nothing more. Ever.
There were the other ways in which they were extraordinarily self sufficient. He liked to fish, and in the autumn months when the striped bass would run he would wade out into the surf and catch as many as he could. Ethyl kept a big vegetable garden beside the house, and they would eat, freeze or can everything they grew and caught. What they didn’t eat themselves they traded for venison and fowl and other things from hunters and farmers nearby. They spent as little as they could get away with at the grocery store.
In your mind this might paint a picture of Wilson as an antisocial person, a scrappy someone concerned only with himself. You would be wrong. He volunteered for thankless local government roles, rose to the highest ranks of Freemasonry and was a respected member of the Rotary Club and Kiwanis. Privately, he did even more. Wilson spent lots of time with kids like me, teaching us all manner of things about chemistry, magic tricks (often fun when combined) and countless other things that in my youth seemed like the hidden wisdom of the ages revealed. Least visible of all he did very personal charity, usually helping families that fell on misfortune due to illness or injury. He gave to these families using churches or other organizations as fronts. They never knew who their real benefactor was.
Wilson and I got to know each other starting in the late 1970s and early 1980s when economic times were not so great. The US was, of course, in a prolonged recession then and there were many parallels to the conditions we are starting to see today. Fuel prices were high, credit was tight (and very expensive) and jobs, especially good ones, were much more scarce than they are even now. Of course to Wilson the conditions of the 1970s were no big deal. Compared to the bitter despair of breadlines and the many other heartbreaks of the Great Depression, the doldrums of the 70’s were mild. In any case he and Ethyl had been so prudent for so long that they had little to fear. Their home and everything in it was paid for. They had lots of savings put aside. They grew and caught their own food. If times got really hard people would be coming to them for help, not the other way around.
When I would visit him Wilson talked about the tough times of the 1930’s a lot, and the habits of people in later days just as much. One of the stories that he told me was about a family he had helped back in the 1950s. We’ll call them the Smiths. I remember it vividly because he described their wretched condition so well. They had fallen on hard times when Mr. Smith had lost his job and they could no longer pay their bills. They had a lot of bills.
Wilson marveled at how the Smiths had lived. He said that they had bought everything “on time” which was his way of saying with credit that required making payments over time. Their house, their car, their appliances – even some clothes. All of these things were bought with some sort of credit facility, provided in some way by a bank, a car dealer or a department store. They had no savings, and when their income disappeared their situation quickly became desperate.
Wilson could not comprehend it. Mr. Smith had had a good job for some number of years, and yet there they were living completely in hoc. He couldn’t fathom how they would have no savings to speak of or how they could possibly think it right to owe money on their shelter, transportation and nearly everything else under those circumstances. He recalled that as a young man every family he knew of that was able to buy a home did so only after saving for many years. People who bought things “on time” suffered most when the Depression hit. That anyone in a younger generation could make the same mistake astounded him.
Wilson related this story to me because by the time I was a kid “consumer credit” had just become a reality and it deeply troubled him. He saw everyone becoming like the Smiths. Visa, MasterCard and American Express were coming on strong, and of course by then virtually everyone bought cars with loans and houses with mortgages. This was long before the average household carried the kind of debt burden that it does today. It was also long before the United States itself carried the kind of debt burden that it carries now.
I cannot imagine the reaction he would have to our circumstances now. For decades we have been a nation living “on time,” a country that has become almost wholly dependent on credit for everything.
The average US household carries $8,000 in credit card debt today, has a negative savings rate and little to no equity in the home in which it resides. I’m sure with times turning sour these numbers will only get worse. These frightening statistics are nothing, however, compared to our collective indebtedness we share as a result of being citizens of the United States.
We now carry 15 trillion dollars in debt by some estimates. 10 trillion of that was the accumulated national debt before the current financial crisis. Some sources estimate that the total of all taxpayer-backed bailouts pledged in recent months already totals five trillion dollars and is rising by the week. The two together get us to the 15 trillion mark.
But it gets still worse.
Social Security, Medicare, Medicaid and other similar US government entitlement programs now have a future unfunded liability of an additional 41 trillion dollars. In simple terms this means that these programs are currently scheduled to disburse 41 trillion dollars more than they will take in through taxes over the course of their lifetimes.
Add it all up and divide by the number of taxpayers and you get to a truly astonishing and frightening fact. Assuming that the US has about 150 million taxpayers (close enough for this exercise) the grand total of all US government indebtedness including promises of future payments now totals about $373,000 per taxpayer!
If we all had hundreds of thousands of dollars in savings in the bank this would be scary enough, but on average we are all broke in our private lives. The truth is plain and unavoidable. During our lifetimes the government will be faced with a choice – come to each of us paupers asking for $373,000 or renege on the promises it has made to the borrowers that have been lending to it and all of the retirees that are counting on it.
I have no idea what will happen in the end, but I simply don’t believe it’s possible for us to honestly pay our way out of this mess. We have already gone beyond the point where you can raise taxes enough to do so. History has shown over and over again that when taxes are raised beyond a certain level overall productivity declines and tax receipts actually go down, not up. It’s kind of like trying to carry too much stuff at one time. Ultimately you just drop everything. I have to believe that we’ll reach that point long before we can raise the money necessary to pay off our nation’s debts.
The financial markets are starting to figure all of this out. Earlier this week I read here that there is talk in some circles of cutting the credit rating of the United States from it’s current AAA status for the first time ever. This has many implications, but the most urgent will become the fact that the cost of borrowing all of this money to cover the gap between taxes and spending will go up substantially. What happens after that, well… I shudder to think.
The word “calamity” hasn’t been popular for generations but it could make a big comeback. If you want to see how truly hard life was for people in Wilson’s generation I recommend a few movies and books that will give you a feel for it. For movies you could do a lot worse than Cinderella Man and Sea Biscuit. For books I can’t recommend the recent Water for Elephants enough. Older titles like Grapes of Wrath are, of course, indispensable. Of Mice and Men was both a good book and good movie. Absorb those works and reflect on how differently you have lived your life to this point than did the characters you see portrayed. Say a prayer that those two very different kinds of experiences don’t become more similar during the remainder of your life.
For his sake I’m glad that Wilson passed on many years ago. I never saw him become emotional but he was more than a proud man – he was a patriotic one as well. I think he would weep at our state today. Why we all could not have followed his kind of example to at least some degree is beyond me. It was in us I think, but somehow it escaped us in later generations. Just like the Smiths that he helped out in the 1950’s, we have been living “on time” too much and too long.
Time’s up.
