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A Look Back Gives A Sense Of Proportion

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John Reiniers

More Than Words

Published: February 27, 2009

We all groan nostalgically or with jealousy when we recall or read about gas at 27 cents a gallon in 1950. Boy, that sure was affordable.

Not so fast.

There's another side to this coin: First, that's $2.19 adjusted for inflation. Many people could only afford to put in a dollar's worth. A woman, who was a child in the 1930s, told me that her parents couldn't afford a 3-cent stamp, so they didn't write letters. She never saw a telephone as a child. Family members had babies, got married or died and not everyone knew what was going on. They didn't feel denied. That was just the way it was. Credit cards had not yet made the scene, so nobody could buy anything on credit.

In the late 1940s or early 50s, before boomers were in full swing, the only way ordinary folks kept in touch was by mail, because the 3-cent stamp was all they could afford. A long distance call was cost prohibitive. The federal minimum hourly wage in 1950 was 75 cents. A 5-minute call in 1950 in 2003 dollars would be $28.19. No one in their right mind would work for over three hours just to make a phone call. Those were the days when people who were traveling would make a "person to person" call to their family, asking for themselves by name, just to let everyone know they got to where they were going safely.

The wife of a close friend of mine worked at Howard Johnson's for 10 years in the 1950s and 60s to save up for a big down payment on a house to qualify for a mortgage. In those days, banks made and kept the loan on their books. Loans weren't "sub prime," securitized, sliced and diced and sold to suckers all over the globe who thought they were financial geniuses. (The only word that started with "sub" in those days was a naval vessel.)

The point of this exercise is to show that we have lost our way.

Frankly, the financial meltdown we all have created is nothing more than a simple morality tale. We need to prudently manage our finances.

The problem is that the only people who know this today are those few from the irrelevant generation nobody listens to anymore. But there is hope for Generation Y – the Millennials (1980-2000), offspring of the Gen X crowd, who learned all the wrong lessons from their Boomer parents — because many of the millennials will profit from this current fiasco before it is too late for them. They will try to live within their means and save something.

Where to begin? Well. The pre-boomer folks — who never had a "name" — lived in reality. Yet, as I said before, they never felt denied. When going to high school and undergraduate school, I worked seven days a week during the summer, and during the school year, along with many other students. That was just a fact of life. There were no scholarships, no student loans, no credit cards. Nobody felt like they were entitled to anything because this was before the entitlement era. Nobody had any expectations of governmental largess, so nobody felt sorry for themselves.

We are now at a point where government policies promote and then ratchet up expectations for all: Everyone has a right to own a home. Everyone has a right to free medical care. Everyone has a right to a student loan. Everyone has a right to a Social Security. Everyone has a right to a government safety net. These programs can only result in either easy money policies by the Federal Reserve or excessive governmental or personal debt. Somehow, all this stuff has to be paid for.

And it is a global mess. As the Economist said on Feb.14, referring to Britain specifically, and Europe generally, "What appeared to be a model and well-run economy, expanding steadily ... without inflationary strains ... was fueled by debt — both public and private?

I talked to a woman who was proud that over a period of 12 years she remodeled her house room by room without incurring any debt. Her friends ridiculed her for not refinancing her home when home values were skyrocketing and getting a home equity loan for remodeling, or, as some did, to buy a new luxury car or take a cruise. She said that all of these friends are now struggling with debt. Some are in foreclosure. And these are folks who bought their homes before subprime loans became the vogue!

It may be that this contagion of irrational debt originated in the United States, but it certainly went global. Iceland's external debt has driven the country into bankruptcy. As one local professor said referring to their currency, "The Icelandic Krona is history." Iceland has been called the country that became a hedge fund.

And to prove that even the Chinese have lost all sense of proportion, the Los Angles Times, reporting on commercial development in Beijing, noted, "since 2006, an amount larger than all the office space in Manhattan" has been developed! The city has a skyline of empty or barely occupied "see-through" buildings, as they are known. No desks. No people. No nothing.

This mess in the U.S. started with social legislation designed by Social Democrats decades ago, and morphed into easy money and creative debt engineered by opportunists who were thought to be financial geniuses. William Cowper, English poet and writer, said it best more than 200 years ago: "Knowledge and wisdom, far from being one, have oftimes no connection. Knowledge dwells in heads replete with thoughts of other men: Wisdom in minds attentive to their own."

Think about this. Read it out loud.

John Reiniers, a regular columnist for Hernando Today, lives in Spring Hill.

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