10 ways the new economy will look different
From the rise of the tightwad to the decline of the Sun Belt, American values and industries will be reinvented as the nation comes out of the worst recession since the 1930s.
By Peter Grier | Staff writer of The Christian Science Monitor
from the April 10, 2009 edition
WASHINGTON - On Sept. 18, 1873, weakened by investments in the ill-conceived Northern Pacific Railway, the big Philadelphia banking firm Jay Cooke & Co. went bankrupt. A national economic crisis followed – one with eerie parallels to the grinding recession of today.
Cooke & Co. was the Bear Stearns of its time, a pillar of national finance. If it could fail, anyone could, and the US stock market collapsed that awful autumn. The price of real estate, railroads, and other hard assets crashed, too. Banks fell like wheat before a reaper. Deprived of credit, Main Street commerce suffered. Unemployment reached 25 percent in big cities. The Panic of 1873 eventually led to 18,000 business bankruptcies. National production shrank for six years. Yet a new and stronger US economy emerged from the wreckage.
The builders of railroads and canals had gone bust, but they left a transportation infrastructure that in time bound regions together. Commodities – kerosene from Eastern coal, wheat from Western fields, canned fruit from Southern orchards – flowed down this web to the great ports of the US seaboard. Ton by ton, America remade itself into an export powerhouse, the China of the day.
"These goods helped pull the US out of recession," says Scott Reynolds Nelson, a historian at the College of William and Mary in Williamsburg, Va.
The point here may be a simple one: This will end. When it does, things will be different. It's possible the US economy will be transformed.
1 VALUE AS THE NEW VIRTUE
This is a given: the BC economy (the one we had Before the Crash) had too much of many important things. Too much debt. Too much consumption. Too much speculation in complicated financial instruments by bankers blind to the bubble inflating around them. That's not coming back.
Housing prices are not going to rebound 20 percent soon. The Dow is not getting back to 14,000 this decade, and maybe not the next. Circuit City, Linens 'n Things, Lehman Brothers – they're all extinct, like Studebaker. "We are never going back to the way we were," says Paco Underhill, chief executive officer of the retail consulting firm Envirosell.
You don't have to be a futurist to foresee that in the coming new economy just about everyone in the private sector, from consumers to financiers, will be looking to get the most they can for their dollars. You can sum the situation up in two words: "value rules."
In the old days of two years ago, the thrill was in the extras – the heated steering wheel or the size of the second shower in the master bedroom suite. Now it's in the percentage discount from the previous list price.
This change in economic attitudes could mark a shift in America's very way of life. Look at the Great Depression: It was a scarring experience that taught a generation to practice such acts of thrift as washing out plastic bags, to the puzzlement of their baby boomer kids. "The era of 'bling' is coming to a close," says Mr. Underhill.
2 RETURN OF THE TIGHTWAD
The new value rules have been reflected for months in that most sensitive of indicators of consumer attitudes – marketing. The sign of the times is a sign in the mall advertising "65 Percent Off!"
Those placards are going to be up for a while. Many retailers are desperate for cash as much as profit, just to pay their suppliers – and buy the next season's line of goods so they can stay in business. Having experienced those deep discounts since last November, consumers may now expect them as a matter of course, says Stephen Hoch, a professor of marketing at the University of Pennsylvania's Wharton School of Business. He thinks a new logic now pervades the US marketplace.
Remember those advertising campaigns that preached entitlement? They featured sailboats crashing through surf, or a team of climbers standing triumphantly atop K2. The people looked impossibly handsome and successful, as if they'd taken time off from modeling to run Google.
"You work hard, so you deserve this [auto or watch or necklace or power bar]!" the ads said. "Sure, it costs about the same as the GDP of Senegal. But aren't you worth it?"
Those pitches have all but disappeared. "That kind of theme doesn't fit the mood of the country right now," says Mr. Hoch.