We Have Met the Enemy
Who's to blame for our economic woes? Let's all look in the mirror.
By Knight Kiplinger, Editor in Chief
From Kiplinger's Personal Finance magazine, September 2008
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It's a natural tendency to blame others for our misfortune. And it's also human to demand of elected officials that they "do something about it." And that's what we Americans are doing.
We want Washington to lower the prices on gasoline and food and to enable our dollars to buy more on a trip to Europe. We want someone to fix the housing mess and make the value of our homes start to rise again.
We're embarrassed that Wall Street is going hat in hand to Arab and Asian governments for infusions of capital. We don't think the Pennsylvania Turnpike should be leased to a company from Spain, nor should Anheuser-Busch be sold to a Belgian-Brazilian brewer.
But Congress and the White House are powerless to be of much help in the short run -- and even if they tried, they would probably make matters worse. When looking for someone to blame, we would be wise to look in the mirror. In the words of that comic-strip philosopher Pogo, "We have met the enemy, and he is us."
Excessive borrowing
Most of our economic wounds are self-inflicted, stemming from our inability to live within our means.
America's household savings rate hovers at just about zero and has occasionally dipped into negative territory. That means many families are using credit to support spending that exceeds their annual income. (A financially healthy household should be saving at least 10% of its gross income for emergencies and retirement.)
Many Americans live in a house -- and drive a car -- that eats up too much of their monthly budget. They dine out when they could be eating at home, and they indulge their children with trendy clothes. They mistake wants for needs.
Want to bring gasoline prices down? Producing more of it in the U.S. will help ... in about 20 years. For immediate relief, our only choice is to start using less of it, diminishing global demand. And as individual and institutional investors, we could stop trying to benefit from soaring oil prices by pouring money into commodities mutual funds. The investor demand contributes to higher prices.
America's biggest overspender? Uncle Sam. Perpetual federal deficits force Washington to borrow from its own citizens and, increasingly, from foreign lenders. Repayment will put a terrible burden on our children and grandchildren. Shame on us for abetting this. Plus, our insatiable appetite for imported goods, especially petroleum, exceeds what the U.S. earns from selling our goods and services to other nations.
The nation's perennial overconsumption and undersaving lie at the root of our economic challenges today. They are the reasons the dollar is so weak. And the weak dollar makes imports more expensive, fuels inflation, makes U.S. assets cheap for foreign buyers and, eventually, will force the Federal Reserve to push up interest rates to shore up the dollar and fight inflation.
We citizens say we want Washington to reduce the budget deficit, but we continue to elect congressmen from both parties who apparently think we don't mean it. Their confusion is understandable because voters demand lower taxes and more services from government simultaneously. Many citizens say they would accept higher taxation if federal spending were frozen, thereby balancing the budget. But they don't believe Congress will ever stabilize spending.
Genuine "budget hawks" are as rare as the ivory-billed woodpecker. Barack Obama certainly isn't one. John McCain used to act like one, but now that he's running for president, it's not so clear that he is.
The U.S.'s economic problems are not the result of bad luck or other nations picking on us. As Cassius admonished his friend Brutus, "The fault is not in our stars, but in ourselves."
We Americans have it within our power to slowly reverse these dangerous trends. The big question is whether we have the will.
Columnist Knight Kiplinger is editor in chief of Kiplinger's Personal Finance and of The Kiplinger Letter and Kiplinger.com.
Reader Comments (38)
Posted by: Anurag Gupta at 08/13/2008 08:14:01 PM
How about not attacking other nations on various grounds every now and then? War mongerers have historically driven themselves bankrupt. Most of the suggestions in this article are impractical...Living beyond one's means will always be an individual choice and people will act based on their past experience and perception of their future. Debating over bringing down personal liability drastically (reduced healthcare costs and frivolous law suits), rejecting war and curtailment of civil rights, increased spending on education and healthcare, stricter laws on safeguarding pensions, closing doing the tax loopholes for corporations to hide money will help the society achieve much more.
Posted by: Dennis at 08/15/2008 09:13:19 AM
YES! Thank you making this point. Argue semantics and strategy all day long.. you will get nowhere. The solution is always within ourselves.
Posted by: Nomen at 08/15/2008 10:04:06 AM
Ooooh. You hit a nerve. Current business practices and corrupt government do deserve the lion's share of the blame here. Realtors and financial institutions were encouraging people to buy more house than they could afford while government happily jacked up taxes to match higher values. Auto companies were fighting higher mileage standards and encouraging everyone to buy more car than they needed. Credit card companies continue to hound everyone daily with offers of more easy credit. Wall Street continued to demand less regulation while pursuing higher risk with the expectation that the taxpayer would bail them out. Didn't our leaders just give us a tax rebate to spend rather than to save? While many Americans are indeed overspending and not saving, the bulk of our current economic problems can not be blamed on them. The average skilled and unskilled American worker is under tremendous downward wage pressure from outsourcing, illegal labor, and H1-B cards. It's hard to save while prices go up and wages go down. Pandering politicians continue to say anything to get elected and then act in their own self interest. When I look in the mirror, I see a man trying to cope with misinformation,a diminishing income and higher living expenses. Pogo must have been either a businessman or a politician.
Posted by: Victor at 08/15/2008 10:55:35 AM
...Domestic Energy production can be had in 2-3 years not 20!
Posted by: Patrick at 08/15/2008 11:28:10 AM
If people (or governments) spending beyond their needs is a personal choice then it should not be a public burden to bail them out. The one reason America is not in a technical recession (unlike all the major economies of the EU) is because of a weaker dollar, which increased exports. The same people that complain about companies outsourcing jobs to lower labor cost markets are the same ones complaining that the dollar is weakening. Many people in America complain about both sides of the same complex issues and obviously don't understand how the world works.
Posted by: Peter Schuitemaker at 08/15/2008 11:32:23 AM
I couldn't agree more with you. We are a country that is powered by consumer spending and we overspend in many things that we have allowed to become status symbols of how much wealth we have. We are slaves to our own success in marketing things. Cars, expensive clothes, cosmetics, are examples of things have become necesities like food and shelter. We have to live within our means and it is a responsibility we owe to our kids. Our government and not all of us are living within our means and the debt burden to future generations is getting bigger every second.
Posted by: GoGlobalWarming at 08/15/2008 12:53:36 PM
Can I just say AMEN! I've been telling my friends that our debt is our real problem for a while now. I can't agree with Gupta or Nomen. The Chinese make roughly 1/10 of what Americans do on average and still manage to save about 1/2 of their income. We select our politicians who only want to spend more and increase the size of government. Throw the bums out! I'm sick of hearing people complain about how much the Iraq war costs. We spend about 20% of the GDP on defense. We spend about 60% of the GDP on entitlements. These are government handouts - Social Security, Medicare, Medicaid, Welfare, Food Stamps, etc. You want out of Iraq? That will probably happen soon – after we succeed in our mission. How about cutting some of these benefits too??? Do what you can and stop complaining about high prices. How about downsizing your house or joining a carpool/vanpool or take public transportation? I recently switched to a vanpool and am saving roughly $80/month on gas alone. If you include wear and tear on the van that I am not paying for it is much more than that. Pull yourselves up by your bootstraps and stop blaming everyone else for your problems. If you don't make enough money then get more education so that the work you do is more valuable to those around you. This doesn't have to (be) college. It can be a trade school or training in your area of work experience. Let's do what it takes to make America great again and stop complaining like our socialist friends across the pond tend to do.
Posted by: K Maier at 08/15/2008 01:14:44 PM
In the last 8 years, regulations have been stripped from money/mortgage lending. This lack of boundaries has been confusing, misleading and has encouraged reckless spending.
Posted by: Ron at 08/15/2008 02:08:12 PM
To Nomen, who left this comment:"Current business practices and corrupt government do deserve the lion's share of the blame here. Realtors and financial institutions were encouraging people to buy more house than they could afford while government happily jacked up taxes to match higher values. Auto companies were fighting higher mileage standards and encouraging everyone to buy more car than they needed. Credit card companies continue to hound everyone daily with offers of more easy credit." NO NO NO!!!! Realtors encouraged people to buy more home than they could afford--people didn't have to say yes. Auto companies fought mileage standards and encouraged more expensive cars-- didn't mean people had to buy them. Credit card companies hound folks daily--doesn't mean people have to accept the offer!! NONE of that is government's responsibility. I won't say that Wall Street and institutions haven't done their dandiest to borrow themselves (and us) out of house and home, but the "oh woe is me because I fell for the pressure" does not cut it. People have, and had, options, and chose poorly. When I look in the mirror, I see someone who rents because she thought buying with 0% down was fishy, drives a Civic when everyone told me to buy a MiniCooper, and opens her mail with the shredder running. Those were my options, and part of why I'm not struggling as much as many of my peers now.
Posted by: John at 08/15/2008 03:59:00 PM
I have been saying the same thing for a long, long time. People live beyond the means, tax people who have money, and continue to live beyond their means and claim that it was necessary. They flaunt high bills for the top tier programs or goods and claim they can't continue to afford it, or don't want to pay for cheaper end goods and premiums. They think the world owes them because they exist and it is a "social progression", it is never a social progression when you demand others to pay for yourself...
Posted by: Matt at 08/15/2008 04:09:31 PM
Probably the most well stated and succinct article I've read in years to sum up our lingering economic woes. Until we start solving the problems in each our of our own households, we shall continue to exist in a world of self indulgent blame games.
Posted by: GoGlobalWarming at 08/15/2008 04:58:21 PM
Correction on my previous post. I meant to say federal budget, not GDP. Oops.
Posted by: Nomen at 08/15/2008 06:07:55 PM
To Ron. You missed the major point of my comment. I agree that many people have made poor choices but think about the reasons. They believe what they are told. If their bankers say that they should be able to afford the loan, they believe them. If the auto dealer says the SUV has affordable payments, they believe it. When people get in over their heads, the credit card companies say here's more credit. While these people should have made better choices why did the financial businesses take on these high risk loans to begin with? Why did the financial experts then bundle and rebundle these risks and create the subprime disaster? If the trained financial people can't properly manage risk and investments,blaming the little people for our economic troubles rings a little hollow, doesn't it?... I and millions of others,just as you Ron, have tried to stay out of debt but we are struggling. I have paid off my house, drive an old small car, and only use a credit card to get the 3% gas rebate which I pay off every month. However, I was forced to retire because of outsourcing and have lost most of my health insurance. I have watched my children with M.S. engineering degrees and A averages struggle to find good jobs because American employers only want cheaper H1-B workers. I have seen our political leaders do absolutely nothing to make things better. I firmly believe my statement that "Current business practices and corrupt government do deserve the lion's share of the blame here."...
Posted by: JD at 08/15/2008 06:52:03 PM
It's so sad. Even in the face of such obvious truth, there are still stubborn partisans out there who screaming blame at their political bogeymen. They desperately don't want to accept the truth. ..One blames war. What foolishness! The war in Iraq has not had one iota of impact on our economy. How can it? We haven't begun to pay for it yet! We're just racking up the debt for later! When we pay for it, it will hurt, but that hasn't happened yet. The fact that people are struggling even now proves that there are other problems in play..."oh, we can't save because times are tough now!"....Times are tough now BECAUSE WE DIDN'T ACT INTELLIGENTLY BEFORE WHEN TIMES WERE GOOD! ...The federal budget may be huge, but our individual budgets combined are far larger. Washington does as we do, not the other way around. Our representatives represent us perfectly - they are selfish, corrupt, terrible with money, and horribly shortsighted. When we change, they will change.
Posted by: Richard Campbell at 08/15/2008 08:18:13 PM
We want government to work towards a balanaced buget, but most Americans can't seem to balance their checkbooks. If we each devoted the next month to tracking every dime we spent and held ourselves accountable to at least break even, not increasing our debt, could perhaps a million spending habits be changed? And if our cautious spending became a habit, would this be passed to our children as the proper way to approach fiscal responsiblity? And would this growing change become acceptable on a larger scale, to local and even national spending? Then,perhaps, the little swamp criter, Pogo, will say, "We met the saviors and it was us."
Posted by: Ed at 08/15/2008 08:28:20 PM
While it's true we have trouble "living within our means", it is equally true that Greenspan's reckless interest rate cuts and (Wall Street's) grievous ingenuity in inventing dubious "investments" bear the lion's share of the blame. Is it better to spend than save when the "conservative" savings rate was 1-2%?
Posted by: Rod at 08/16/2008 07:47:36 AM
I think this article was right on and I see what it says everyday. In a way I think that a lot of people are getting what has been coming to them...When I bought my house at 21yrs old I made 30k a year and the mortgage company told me they could pre-approve me for a 250k house. To this day, I do not know how they expected me to last more than a year with that salary and carrying that kind of payment. That was when I realized something bad was going to happen and that was in 2003 just think of how many loans like that could have been made in the past 5yrs.
Posted by: Dale at 08/16/2008 11:17:52 AM
Outstanding article. But with great respect...The price (of oil) is dependent on many factors, a key one of which is the anticipated future supply. Second, the time from start to finish of new production efforts also depends on many factors, but only the extremely difficult might take 20 years. Most projects would be producing oil in the 7 to 10 year range, the easiest in as little as 4 or 5. Finally, investments in commodities, mutual funds, and stocks have a negligible, if any, effect on commodities prices. It is exactly the other way around.
Posted by: Nelson at 08/16/2008 01:59:46 PM
Ron, Good points, but a lot of what Nomen says is right....Unfortunately, not everybody has good financial sense. I would go further and say that very few have it. It is not taught in school. Perhaps it should be a requirement for graduation kind of like Civis was for me when I was in high school. In any case, this lack of sense permeates our society. The credit industry senses this and preys upon the weak(the financially ignorant) similar to predators such as sharks smelling blood in the water. Government needs to set standards (regulations if you will) to prevent such predation. Lack of such regulation has allowed these people to qualify for homes they could not afford. Granted they wanted these expensive homes(shame on them), but how did they qualify(shame on the lenders). I couldn't qualify for the home I wanted (back in the old days), so I had to settle for a less expensive home. That's the way it should be today. However, the financial insitutions and home builders wouldn't prefer this, as it would affect their profits. They have persuaded our Congressman to create a predatory environment that has allowed them to flourish...The financial industry does not want government interference in their business. I can understand that, but they didn't object to the government interference in bailing out Bear Sterns now did they?
Posted by: 1000TON at 08/16/2008 06:26:25 PM
Mr Kiplinger: well done Sir! Outstanding, basic vocabulary for everyone to understand.Pure and to the point.
Posted by: ivan at 08/16/2008 09:00:47 PM
My hat's off to Ron. To paraphrase Confucius 'Money is your slave while you have it and your master when you give it away'; and Ben Franklin said in Poor Richard's Almanac, 'It is better to go to bed hungry than to wake up in debt' and 'A poor man on his feet is taller than a rich man on his knees'.
Posted by: C. Lambeth at 08/17/2008 11:30:20 AM
Thank you, (Knight) Kiplinger, for refusing to dance around the uncomfortable issues and instead, for telling it like it is. These messages are not popular (and they never will be), but the truth needs to be told. Thanks for having the guts when other finance letters just try to make us feel better about ourselves.
Posted by: Mike at 08/17/2008 09:44:53 PM
Great article! Couldn't have said it better myself. I work in the retail banking industry, and on a daily basis I interact with clients who have yet to admit this simple truth: "I am in control of my finances." It's not my neighbors fault, nor my parents' fault...not my dog's fault. However, I must admit, the lack of financial education is very real. The basics I take for granted (saving/budgeting/investing) are really NOT basic to the everyday person.
Posted by: aleck at 08/18/2008 09:32:56 AM
Yes, finally. Somebody with guts to stand up tell the overconsuming public that it is our fault at the national media level.
Posted by: B. Pelkey at 08/18/2008 11:46:55 AM
I have long said that our grade schools and/or high schools should have a required personal finance class. Way too many people are clueless about managing their finances and investments. I'm an accountant long involved in making my own investment decisions, so it's easy for me but it isn't difficult to teach people how to do it.
Posted by: tim vesper at 08/18/2008 11:50:27 AM
"More than 60% of U.S. corporations didn't pay any federal taxes for 1996 through 2000, years when the economy boomed and corporate profits soared, Tuesday's Wall Street journal reported, citing the investigative arm of Congress...
Posted by: Kelly at 08/18/2008 01:58:25 PM
60% of corporations don't pay? This is a sound byte you've spouted without understanding. LLCs and subchapter S corporations are required to distribute profits to shareholders every year and are taxed at the (higher) personal income rate. They effectively have no income within the corp so pay no taxes. Most small corps are of these types. The large corporations (subchapter C) pay on income at the corporate rate. This misconception is bait from the media to enrage the ignorant.
Posted by: Chip at 08/18/2008 07:16:34 PM
Wow, talk about nail on the head. Can't say I'm not part of the problem, but at least I understand that the answer will not be coming from D.C.. I thinks it's very interesting to see the "Working Class" folks that live "Paycheck to Paycheck" driving late model cars to Wal-Mart to buy a steamer trunk full of processed snacks and the latest XBox 360 or Playstation 3 games.
Posted by: Someone at 08/18/2008 07:56:46 PM
...You may wish to praise safe choices and investments all you want, but all I have to say is, this is not how America was built. Those are not the principles that were used. It has nothing to do with chasing the American Dream and the Free Spirit of this Nation. People...are simply bitter that they have never succeeded in their life, and like to bash the people that drive the fancy cars and wear the nice suits...Well, you are failing to see that those people that take risks and have been there once, will get back there again, and much sooner than you. In another year or two, they will drive a porsche once again, while you will be still in your old civic, talking about the problems of the society and economy...
Posted by: SoCalJasonland at 08/18/2008 08:08:59 PM
Bravo! I am getting sick of all the other articles painting the consumer with multiple refinances / cash outs as the victims. We need to start living within our means.
Posted by: Sergei at 08/18/2008 10:24:49 PM
I am afraid there is not much hope to change the way Americans handle their finances. I don't know what is it, but some things I hear from my American wife is total nonsense: "you don't have to pay your credit card in full, you know, just pay a minimum payment", " we will never have money anyway so why should I pinch every penny?", "it's OK to be in debt, everybody has debt, all my friends are in debt" and so on and so on. I read about people making $350K a year and loosing their $1M homes...this is totally crazy! The basic idea it is not about how much you make, it's about how much you manage not to spend. Great article!
Posted by: Vijay at 08/18/2008 10:40:48 PM
Your article proves that common sense is hardly common. It actually does not pander to populist sentiments and the time tested habit of most people blaming somebody else for their problems. Bravo!
Posted by: Dave at 08/19/2008 08:07:17 AM
I agree with your article on saving and spending except for the fact that it's hard to save 10% when you're working for minimum wage. Go to the store and try to find something made in the USA. All of our jobs have (gone) overseas. I blame big business for their corporate greed. I should know, I'm a unemployed worker.
Posted by: toml at 08/19/2008 01:16:52 PM
why isn't this article on the front of every paper in the country - our biggest enemy is the sand we bury our heads in. this article is right on the money (pardon the pun) - start living within our means, save for that car, save for a down payment on a house, don't buy that thing unless you can pay for it. the encouraging this that they are restricting credit now so maybe it will be tougher for folks to get those easy loans
Posted by: melissa at 08/20/2008 07:05:37 PM
I'm glad someone is telling people the truth. Everyone is asking the candidates "What can you do for me?" You can't have lower taxes and more govt programs unless we go further into debt. Why can't people figure that out? And if we didn't have such an insatiable desire for lots of cheaply made stuff we don't need, we wouldn't be buying so many imports and might consider paying more for quality goods made in this country.
Posted by: Alex at 08/27/2008 11:56:06 AM
Completely agree with the author. But what about goverment stimulus package, economists and media who always promoted these huge seasonal sales: buy more to stimulate economy?...
Posted by: FadingFast at 09/08/2008 05:57:33 PM
Where is the incentive to save in our inflationary monetary system? As long as you don't actually spend yourself into bankruptcy, it makes economic sense to carry as much debt as possible; you're paying back with cheaper dollars and you can't get a positive return on savings adjusted for inflation. The current system is set up to serve the elite. The rich get richer and the rest of us struggle to make forward progress. A gold standard may or may not be the answer, but something has to be done to limit the federal government's dual abilities to print and spend dollars at will, or the current financial crisis will be only the prelude.
Posted by: Steven at 09/10/2008 07:23:16 PM
How quickly we forget. We did have a budget surplus and this country was in very good shape when President Clinton left office. President Bush has been has been on a spending spree since he stole into office. And don't forget after 9/11 when he decided retail therapy was the cure for a country that had just been attacked: "Go shopping; America is open for business." Look in the mirror and the problem is Bush.