Here's what works in any economy

June 16, 2009, 7:25 am by Ben Stein yourlife

A few basic truths about recoveries.

I received an odd request by email recently; it came from a lecture bureau in Canada, where I often speak. The bureau wanted to know if I could speak to a certain commercial real estate group, but first I had to definitively answer several questions:

1. When is the recovery going to start?

2. Will it be a rapid or a hesitant recovery?

3. How much larger a role in the world economy will China play after the recovery?

4. Will workers or business owners get more of the benefits of the recovery?

5. What will the price of various energy commodities be at the end of the recovery?

Initially I tried to answer the questions as well as I could. I could tell my questioner a few basic truths about recoveries: Usually they are fast, but occasionally they are slow and then turn fast. I could also offer a basic truth about China: There are limits on how far and fast nations' economies can go, and China does not seem to have reached those limits yet. But after that, I gave up.

An Economist, Not a Fortune Teller

I am an economist, not a fortune teller. I do not know what the price of any commodity will be in the future; I especially do not know what energy commodity prices will be. That market is wildly speculative and -- I believe -- subject to extreme manipulation regardless of basic trends of supply and demand. And I emphasize again that, while there are many encouraging trends in the economy -- especially in finance -- the timing and vigor of the recovery are as yet unknown. Certain data about the financial health of the consumer are still distressing.

In any event, since now I have told you a little of what is unknown and not knowable in advance, let me tell you a bit of what I do know. I hope that some of this is applicable now that Father's Day is approaching.

I knew my father my birth (well, perhaps a few years after my birth) until his death in 1997 on August 8 at 2:50 p.m. But who's counting? In all of that time, I cannot recall his ever giving off an air of worry about money. My mother, on the other hand, was worried about money every moment until she got into her sixties and realized she was extremely well prepared for any conceivable financial emergency. That's another story.

My father had lived through the Great Depression. He had known what it was like to not have enough money and to wonder how he would pay his bills. He had set up his life so that he always spent less than he earned. That meant he had lived in a home far more modest than he could afford. He drove modest cars -- Fords and Chevys, and even a Dodge. He did not show off his money in any way whatsoever.

Living Below Your Means

That had become a habit with him and stayed a habit even when he was a well-heeled guy in his latter years. After he reached retirement age, he still lived modestly. In fact, he often lamented that he lived too modestly and should have had better homes and more of them. (If you can read this, Pop, I have made up for it and then some.) But in 1979, he and my mother left their home in Charlottesville, Virginia, and moved into their modest pied-a-terre at The Watergate. Then they bought their last car, a Chevy. And they really did not spend any more money other than to give it to charities and to my sister and me.

They had savings, and my father once estimated that he and my mother lived on 20 per cent of their unearned income. That is, the sums coming in from dividends, interest, variable annuities (their most successful investment), social security, and pensions was roughly five times what they spent.

I would suggest that, even if there had been a Great Recession in their latter years, my parents would have breezed through it. It is this attitude that we know works. We know that modest desires are the foundation of economic security on a personal basis. There is no catastrophe worse than lavish desires, as a famous man once said. Our great president, Mr. Obama, cannot provide the rock of prudence upon which to build the cathedral of your security. But you can -- if you learn from my father and yours. Basic good sense means not spending more than you can afford and always realizing that calamity can lie ahead; these principles are your lifeboats in any flood.

But as I study my life and that of my friends, I am coming to realize that our fathers had a lot more sense than we do. This is depressing but true.

Now it is our task to get ourselves off the pity pot and into sound financial practice. I know what you're thinking: Let him who is without extravagance among you cast the first stone. But maybe we can learn together, you and I, from our fathers, whether they are here or not. I am not a teller of the future, but I can tell you that thrift and sensible financial practice always work, no matter what mistakes or sensible acts presidents, treasury secretaries, and Fed chiefs make.

We are slow learners, Pop, but we're getting there.

Stock Quotes

e.g. BHP, CBA
COMPARE & SAVE