More Anecdotes from the Texas Main Street

I had the opportunity to talk with three folks representing what I think are interesting data points regarding the economic situation and its effects over the last three weeks. Again, comments are paraphrases, not quotes:

From a car repair place: Business is about the same… but folks are being more careful about what they’re repairing. And they’re holding off on repairs, especially if they have high deductibles.

Top Line Liquor From a liquor store owner: I’m still selling. But people (gestures toward single malt scotches), are buying the cheaper stuff, not the expensive. (Points at the bargain, economy priced bourbons and scotches.) More like these, and less (waves hand upward to the $70 bottles) like those. But hey, things will get better eventually. I’m downgrading this guy from owner to manager… clearly he hasn’t looked at credit terms lately.

What’s interesting is that I’m getting a fairly homogenous set of responses (this post and the last) in terms of the economic impact. Everyone seems to be getting hedgy with their investments. Everyone seems to be acting, if not executing, on a more conservative, less confident, track.

I think this is how the 1929 crash started, except they didn’t have folks like me making connections quite as fast. (No, that’s not a reason to self-sensor!) I predict we’ll get to the 8,000 range well before the winter holidays. Unless Obama gets elected, in which case all bets, unfortunately, are off. At least with McCain/Sarah [mammoth hunter] Palin we know where we’re headed. [Okay, that was partisan, but if you’ve been reading this blog… you know where I stand.]

Anecdotal Observations from Main Street

I’ve been collecting comments from people running or managing retail businesses, to see what changes consumers have been made.

From a gas station manager: People are pumping differently. They’re not filling up, but I see them around more often. They’re topping off, like on their way home and stuff.

From a hair stylist: Business is down. Not during the weekends, then we’re real busy. But people aren’t coming around during the day. Like now (gestured at the empty store): between like one and five in the afternoon it’s totally dead.

From a supermarket manager: Overall receipts hasn’t changed. But people are buying less each time, and coming more often instead. And they’re coming in more with shopping lists; they’re not shopping casually.

People are talking about Main Street, and the reality of the economic impact on plain folks. These observations, to me, mirror more the crisis of confidence precipitating the Great Depression rather than technical credit crisis. 401(k)s, pension plans and the credit markets will eventually recover, with or without a government bailout (and yes, I still think it’s a bailout, no matter what the pundits might opine). The crisis that has to be overcome now is the one of consumer confidence, and there are several relatively inexpensive, non-pork ways to ameliorate consumer fears:

  • Eliminate short stock purchases. Period.
  • Extend unemployment benefits to a full year.
  • Freeze all foreclosures for the next eighteen months, and have local bankers, a representative from the mortgage company and the homeowners sit down and try and figure out how not to foreclose on the property. The feds should give local banks (not parent companies, or at a national level) funds relative to the mortgage stresses in that area to help underwrite these new loans. Only after there’s no agreement, or it’s clear the homeowner would be unable to pay even a reworked mortgage, would the foreclosure continue.
  • Underwrite ‘pay for play’ programs, where unemployed people who successfully complete training and certification courses have a free ride — but are personally liable for the courses if they do not complete them (this cuts the ITT Tech student loan scam out of the loop).

There are other ideas, ones that we’d need to think about, ideas that might not be right for every region of the country, but workable in some. But what we really need is time. Time not to rush, time not to act hastily. And if that results, as President Bush said last week, in the loss of $1.4 trillion in “value” to the country, in the form of a loss of stock value, then so be it.

Calm, thoughtful action is economically more prudent than rash, panicky and doom-driven action.

Instant Feedback on Bush Speech

Everything listed by the President may happen even with a massive bailout. Given the amount at risk, I suggest the following alternative plan:

  1. Wait until after the elections to do anything other than take the time to analyze the models and consequences of economic programs
  2. Ignore the bad loans: let the institutions that took the risk take the consequences
  3. Take the $700B and invest it in new loans to small- to medium-sized businesses, and to ensure the continued operation of student loans
  4. Have the SEC, FBI and any other federal agency investigate every decision-maker in companies responsible for getting us into this debacle. Engage in a ‘De-Baathification’ process, keeping the guilty from ever working in the financial industry again.

One last comment.The President called our capitalism the best economic ever devised. For once, I agree with him. But that means that the profits of capitalistic endeavours must be matched by taking responsibilities for losses incurred when engaging in free market activities.

Refunds and Recipients

Let’s do a little math, shall we? Uncle Sam, in the name of “economic stimulation,” is giving each of us $600, plus $300 per child, of our own money back, to help pull our economy back from the brink.

Let’s see where that goes…

Eighteen months ago gas prices in, oh, say Baltimore, were low. about $2.12 a gallon. That’s about the time agribusiness started spooling up for the great ethanol ripoff.

Price now: $3.55. So, assuming 12,000 miles a year, that’s 18,000 miles times. At an average of 21.9 MPG, that’s $1,060.27 more for the next 18 months, assuming (LOL) that the price of gas won’t rise any more.

That’s the big gorilla. For those of you not afflicted with a car, here’s a small one:

Got Milk? Got Money? According to a NY Daily News article in January, milk prices are up 36% year-to-year. So what was $3.18 is now $4.41. I guess it’s a good thing we’re using less of it, since cows are eating corn that would otherwise be used for ethanol.

Makes a great case for breastfeeding and leaving it at that, only the cost of soybeans has also risen, due to the diversion of acreage to growing corn for ethanol instead of food. But these are trivial rises.

Bottom line: the $1,800 a family of four (with two cars) would receive from the government’s economic stimulus package melts, just opposite the $2,120 in additional cost just from gas increases, not to mention all the other food and essential goods increases.

So if someone wants to stimulate the economy, I have the following suggestions:

  1. Stop making ethanol from corn. It’s increasing food prices all over the world, and competing with feed corn for livestock and milk production.
  2. Put negative price pressure on the cost of a barrel of oil. Price increases are a function of purchase of oil on the spot market; refineries and distributors peg their increases to them.
  3. Oil companies are engaging in profiteering. While Libertarians might rejoice in this exercise of the free market at work, it puts an incredible burden on those of us who depend on this liquid for our lives. Trucks, trains, planes, automobiles, generators… you know, civilization as Americans like it? If an electric trading company decided it wanted to play with the cost of electricity… oh, wait: Enron! Anyone seeing this? ExxonMobil’s excessive profits are at the cost of the entire US economy, and if the government really wants to loosen the pressure on it’s citizenry, getting prices audited and under control is a big deal. (And before anyone talks about price control, realize that cutting Strategic Reserves oil stocks loose is a direct form of price control as well.)

Well? What are you doing sitting around? Go and tell people!