What has caused our decline?

1. In a recent nightline, Robert Krolwich was explaining that the economy is declining because, for several years, consumers spent more than they made. Our net spending was 101-102% of our income. I think it was since 1997 or 1998. We were spending 98% of our income after the last "mini-recession" in 1991-1992. Basically, the condition of consumers spending more than 100% of their income cannot continue for more than 3-4 years. In that time, the debt builds up collectively, and then it simply becomes time to pay the piper. No president or congress is usually to blame.

2. Technology was way overhyped in the late 1990's. Technology now represents about 30% of our GDP in the U.S., based on the valuations of technology companies in the Dow, Amex, and Nasdaq. This was a number I had heard on a stock show like McNeil/Lehrer in 2000. The Y2K scare and Internet hype (dot.com to dot.gone), built up the U.S. economy from about 1998-2000. With the expectation that most of the country would be on high speed broad band cable internet or DSL by now, telecom companies built switches and infrastructure equipment like crazy. Now, those same companies have laid off over 50% of their staff, as sales did not match the volume of what was being manufactured.

3. Farming/Manufacturing has been on a steady slide for more than a decade. Farmers are going out of business left and right, as the U.S. government will not defend the export of U.S. commodities to other countries (other countries protect their farmers by passing tariffs on "imported" U.S. commodities). Our trade negotiating capabilities are lousy. We have run a trade deficit for decades. We let countries like China abuse/mistreat their own citizens and then sell us toys and light manufactured goods for next to nothing. All the while, the poor Chinese work for pennies a day. NAFTA put the nails in the manufacturing coffin in the U.S. I read somewhere that you can't even build a single personal computer today with all "American made" parts. Same is true with cars. We have given our manufacturing prowess away to the rest of the world, where labor is cheaper and govt regulations aren't enforced.

4. We have turned the stock market into freakin' Las Vegas. My father raised me in the 1970's that your purchase of stock represented an ownership interest in a company, with voting rights, and all. You bought IBM, GE, Honeywell, AT&T, etc. with the intent of holding the stock for decades before you sold it. You bought stock in the company you worked for, the company didn't "give you" the stock. (Of course, these were the same companies you employed you for life, too.) But, in the early 1980's (when I started college), something changed. It became like Wall St. the movie. "Greed is good." CBOC became huge. Traders were buying personal computers and Lotus 1-2-3 like crazy to figure out the "patterns" of the stock market. Many traders started publishing newsletters. Then came the 401K, which launched most of the rest of working America into the stock market. It became like the 1920's again, wild speculation, buy and sell stocks in minutes. First came discount brokers, then Internet day trading. Now, you don't even buy stock, you buy a "position" (short, long, covered calls, puts). You're betting whether the price will go up and down. What happened to owning a piece of America (no matter how small)?

The Dow has run from 2300 in 1987 (post crash) to over 10,000 today. The Nasdaq has had a similar run. Based on a historical increase that would cause stocks to double every 8-10 years, shouldn't the Dow be somewhere between 7500 and 8500? Another Nightline a few months back basically said that even with the recent decline in the Nasdaq, it was still high by 40 year historical standards, and it could be flat another 9 years, and still on a 20 year basis earn the same as it did in the prior 20 years. In other words, if we even earn a measly 3-4 percent for the next 5-8 years, we're still outperforming the 1960's and 1970's.

5. Big companies prevent competition and build monopolies through extensive government regulation. In my own industry, the government has passed HIPAA with the intent of "saving money" by forcing all doctors, hospitals, pharmacies, etc. to file "standard" electronic claims. And while we're doing that, we have ensure that the privacy of each and every patient is perfectly protected. These new regulations will cause our healthcare system to collapse, if they aren't revisited. Even "for profit" hospitals are dying right now, under the weight of existing regulation. Once HIPAA is passed, you will see doctors give up practice, hospitals close, and grocery stores shut down their pharmacies. Bottom line: Most companies can't afford to implement HIPAA. Those that have deep enough pockets will run off enough competition to make healthcare, very, very expensive. 100,000's of square feet of office buildings have stood empty for decades under the asbestos scare, and the fear of paying to pay to clean them up. Now the "fear" is about black mold. Even more regulations, until very few companies can even stay in business.

Bottom line, I think a combination of the transformation of our country from one of "workers" to one of "gamblers" is occuring, and causing a major decline in our standard of living, both at the individual level, and at the corporate level. Executives are consistently trying to win the "bonus/stock option" lottery by attempting bold (and foolish) moves to cut costs, move manufacturing to foriegn countries, and continue to market heavily to consumers, often luring them with better "financing", instead of better products and customer service. At more than one company I worked for, 1-2 million deals were looked upon with derision, and VP's were out promising 40-50 million dollar deals to shareholders. Even the VPs were trying to "win the big deal" lottery.

What is happening now? People are thrown out of work. The leadership of most companies are scared. Consumers are pulling back. The "good times" are gone. We're done with the economic expansion. What is the future? Will we have an economy like Japan with a decade of nearly zero GDP growth? Will we quickly get to the bottom and then start to turn around? We we repeat the 1970's when in 1976, the interest rate was incredibly low, and by 1979, the interest rate was 20%?

Only God knows.

But, I can tell you this. We've got to turn around our thinking, from marketing and hype, to building and selling good products and services at a good value to the customer. Companies which do that never go out of style. They aren't "sexy" Wall Street sirens, but more like boring everyday companies like JCPenney and WalMart. Companies where employees still work hard for a living, and the "lottery" mentality is discouraged. We've also got to get our government back from the greedy corporate execs, who buy legislation left and right, and even manage to escape penalty when they are clearly exercising monopolistic practices (M$). We've got to get our import/export back in balance, and turn down trade from countries who treat their workers as slaves or criminals. It's time.

And if the Democrats or Republicans won't do it, then hell, vote Libertarian, Reform, Green, or just something else.

If they're "nobody", then fine, please send it and quote me.

If they're corporate executives, high-ranking senators and congressmen, etc. then please don't because I don't want to be audited by the IRS and generally harassed out of existence.

Send it without giving me credit then.

Use some moniker, like "A really frustrated American."

Glen Austin

Chicago Board of Options Exchange

The place where options are traded...

Glen Austin