Home > Side conversations > Conversation with Seat 11B or what’s going on with the US economy

Conversation with Seat 11B or what’s going on with the US economy

I usually have a good book to read on a long flight home but this time I found myself without any reading materials. My trusted ThinkPad X31 is a perfect laptop for working on the plane. Its  12″ screen is small enough to survive an attempt by the passenger in front of me to abruptly recline the seat. But this time, without a spare battery and no book to read it was going to be a long flight.

The passenger next to me in Seat 11B turned out to be an economist. After short introductions, he asked me, “What do you think is going with the US economy?”. Although I mentioned that I was not an economist, he was still interested in my perspective.

I paused and quickly realized that even a long flight was not enough to give this conversation its due.  Starting at the very beginning seemed to be a good approach.

– It is widely reported that US consumer spending is about 70% of GDP. However, this number includes about half of the $2.5 trillion healthcare spending, or how much US government spends on Medicare. Still, consumer spending is a huge economic driver.

– Bubble #1: The financial crisis began to plant its seeds many years ago. The US economy was being artificially stimulated to encourage more home ownership than the market could create on its own. When the housing bubble burst, billions of dollars were spent on – to put it simply – on unproductive assets. In 2003, former CFO of Washington Mutual predicted this crisis but very few listened.

– Bubble #2: Four jobs paying $25K / per year are not equal to one job that paid $100K / per year but was eliminated in the US and recreated in an another country. Personal incomes are still dropping. Globalization can and does lead to transfer of wealth across borders and this process always produces those who benefit and those who don’t. The middle class in the US is not a beneficiary of this process. It is shrinking.

– Bubble #3: Healthcare. Anywhere between 25% and 50% (there is an ongoing debate about this statistic) of all personal bankruptcies in the US are attributed to personal health emergencies. Approximately 40 million Americans do not have health insurance (again – this number is also subject to an ingoing debate). But one fact is true. There is an urgent need to separate employment from ability to obtain basic and emergency healthcare services. Moreover, there is also a need to guarantee basic healthcare services. Imagine a recently divorced mother who chose not to work while she was raising the kids trying to get healthcare on an individual market …

Seat 11B asked me why I started my conversation by mentioning the US consumer.

The US consumer is not spending because of unprecedented, structural changes in the US economy.

Yet, I believe the US economy will recover a lot faster when all of us exercise our right to vote.

The conversation with Seat 11B turned out to be very interesting.

Categories: Side conversations
  1. November 3, 2009 at 3:31 pm

    Very interesting post… I would be interested to hear the responses from Seat 11B. I agree with the majority of your statements/assessments as being the fundamental problems in the economy. I think that the dilemma is how to fix those issues. Some would say that the government needs to spend trillions to fix the issues… others would say that the government is causing many of the issues described. I believe that Bubble #1 shows that the government doesn’t have the ability to solve the problems… just to cause more.

    Will this economy right itself… sure it will… unless the government drowns it with out of control spending.

    I look forward to future discussions on the economic/political side.

    Jeremy @ RefocusingTechnology.com

  2. Irina
    November 3, 2009 at 7:55 pm

    Very interesting discussion. Absolutely agree that the bubbles existed because of the greed and now the consumer pays for them dearly. I am one of the victims of the bubble # 1 – needed a house and bought a house at a worst possible time. My mortgage company doesn’t care that my house lost so much in value, and is not interested in loan modification. They already got their money as a result of a bailout – why would they care?
    Healthcare is another very painful issue. You cannot get sick in this country – will cost you a fortune to bounce back. To die is very expensive. To be a parent is very expensive. To have aging parents is very expensive. There were many wrong thing with the Soviet Union where I grew up, but during the very rare moments of nostalgia I am thinking about free healthcare and free education. Miss it.

  3. November 4, 2009 at 9:22 am

    Thank you Leon for sharing with us this conversation. Your comments were highly interesting. I agree with you and Jeremy that the US economy will recover faster than e.g. the EU’s. The United States has one substantial comperative advantage over the EU: America is a coherent POLITICAL unit. Therefore, USA can and will execute its common political and economic possibilities to tackle the current crisis. I was pleased to learn that the EU’s FUNCTIONING political entity got concrete boost yesterday as the Czech’s President Klaus finally signed the Lisbon Treaty. As we all know, the EU is already a major economic player on a global scale. Now there’s a possibility that the Union will become also a serious and coherent political power. This in turn provides new advantages for beneficial EU-US relationships.

  4. November 4, 2009 at 12:48 pm

    Where are the voices of dissent? Fox news? There is too much chatter, too much spin to make sense of all that is happening. It’s like the elephant and the blind men. What we perceive all depends on where we stand.

    I still believe that drives us as Americans is the promise of a brighter future. We’ll struggle through a dark present, we’ll sacrifice and help each other during times of trouble, and we’ll take the occasional hand up when we need it only to pass it forward when someone else is in need. Where is the call to sacrifice? Where is the call to conserve energy, volunteer, give of ourselves for the greater good?

    IMHO, the actions of bailing out the wealthy (or past wealthy) companies just to maintain a status quo was the wrong message to us all. An unfettered economy would have found losers and winners naturally. Now, it’s artificial and we may never know what could have been.

    One thing is for sure, the lessons we’ll learn from all this meddling will be costly.

  5. Dan North
    November 4, 2009 at 3:36 pm

    The Financial Crisis, the shrinking middle class, the healthcare inflation, all good points and are symptoms of missing the point. In good times, quality suffers as people spend more on less, in a recession quality normally improves, but not so much in this one.

    Why is this time different? Just look around at the amount of information we have on everything. Years ago, you could always depend on uncle Walter Cronkite to tell you the news. Now, you have so many choices and so much bias polarizing views that you feel like you have to choose sides on what news program to watch. Good information is not hard to find, but feeling good about it is.

    Unregulated financial vehicles will get you wealth if you trust in what 50 different twits are advising you. Instant gratification, sound bites, instant messages, talk show hosts, and other forms of multitasking information all serve to muddy the waters.

    Where is the man in the white cowboy hat that has a message that you can follow? But wait, how do you know that you are not being played? Every TV show has multiple plot lines. The hero, the antihero, the good vampire, the common man, the model woman are all there at the touch of a button. But now you are still paying over $100 monthly for your TV cable giving you less good information while ignoring the fact that you really cannot afford it anymore. 10 cents a minute was a high amount to pay for a phone call years ago, but now people are paying for so much more service that we don’t need while actually paying more per minute for just the privilege to talk. And no one thinks about it even if you did have the time to wade through the details in your online phone bill.

    What it comes down to is this. If you pick quality over quantity, you will survive the recession, if you pick quantity over quality, you won’t. And now people have a hard time telling the difference.

  6. Doug Harnack
    November 4, 2009 at 5:02 pm

    I agree with Dan North’s comments – especially his point about quality over quantity. The inherent humor is that, as he (and I) try to muddle through information overload, we are commenting about it on one of a zillion obscure blogs! RIP, Walter Cronkite.

    I think this economic situation is forcing many to re-think what value truly means to them – and not just in the financial sense. Hopefully, we are getting closer to basics, closer to Quality. Because of all the information out there, we, the consumer, are bombarded with all that is for sale. And that’s almost everything. With the skeletal remains of what were once our pocketbooks, we are having to more carefully choose what we spend on. With more competition for the dollar (or euro), inefficiency and poor products and services will be weeded out.

    Pick quality when faced with decisions. Pick what is truly valuable to you. If we as a society do that, many of our problems will begin to naturally fade. General Motors and Chrysler would look a lot different today if we had picked quality in the 70s and 80s. No one – the consumer, the managements, the Feds – picked quality then and we are paying now.

    What is today’s General Motors?

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