In with the millennium crept a seductive notion, that of the “luxury lifestyle.” The concept arrived as flawed as its grammar.
But status spending, nevertheless, took hold.
Middle-class Americans began buying, on credit, what the rich purchased with cash flow. Banks and mortgage brokers lined up, eager to push credit into a consumer vein hooked on luxe. Regulators put Wall Street in charge of the leveraging party. Wealth, real or faux, swaggered.
In 2000, at a political dinner, then-presidential candidate George W. Bush described his base as the “haves and have mores.” Years later, Bernard Madoff, creator of a $50 billion ponzi, found time to shop at an exclusive Palm Beach store, “Trillion.”
Not to be left out, the U.S. government freely spent for wars taxpayers could ill afford.
Goodbye to all of that.
It’s back to basics, baby. Over-the-top lifestyles have become de trop, or excessive.
U.S. households, in 2008 alone, became poorer by $7.1 trillion. Nothing material is worth what it once was.
Even money lost street cred in 2009. For the first time ever, four-week U.S. Treasury notes were offered at zero percent. Investors, fearing the dollar would devalue, lent the government money for safekeeping, interest free.
The retail highway is littered with the corpses of high living. December ’08 sales at Saks? Off 19.8 percent. At Neiman Marcus? Off 27.5 percent. Chanel and Versace have cut prices for the U.S. market. Where were the shoppers? At Wal-Mart, where December sales rose two percent.
Quality struggles. Waterford Wedgewood, the merged firm of premium crystal and china, is bankrupt. At Sotheby’s, a recent auction fell one-third below projections, with one-third of art remaining unsold.
All discretionary spending is under siege. Dish Network’s sales dropped 54 percent in one quarter, when 10,000 subscribers canceled satellite service. Nike opted to sell its $65 EBI basketball sneaker at JC Penney’s, instead of a $100 brand.
Consumerism was kyboshed when 2.6 million jobs were lost in ’08, and unemployment rose above 7 percent. Most alarming: 11.7 percent of black American adults are jobless, 28.5 percent of black American youth. Hispanic adults and youth have jobless rates of 9.4 percent and 22.6 percent, respectively. For minority young people, unemployment is at Great Depression levels.
Perspective changes when the year’s Dow average falls 34 percent, a decline not seen since 1931. Only 29 companies “went public” in 2008, down from 215 in 2007. Some 8.1 million homes are in danger of foreclosure. And financial frauds stalk the land.
Reality has dawned cruelly upon spendthrifts: A $600 pair of shoes cannot earn interest; a $50,000, mortgaged car cannot create a job; a house full of gadgetry cannot create wealth.
The swank seems out of place now—caviar in a soup kitchen.
What is the new “luxury? Ask the cautious and prudent, who will say that it is living within one’s means, saving for a rainy day, being able to start a business, enjoying the respect of community. (Why didn’t Wall Street and Congress consult these smart people?)
Those who have persevered in hard times will survive these, too. We should seek their wisdom, as President-elect Obama is positioning his administration to do.
The algorithms that failed America were naïve and greed-skewed. When sound business practices return to the financial sector, private enterprise (America’s lifeblood) will move forward to create jobs, restoring wealth and America’s upscale aspirations. Until then, money will wait on the sidelines.
For now, the frugal have inherited the earth.
J.R. Rosskamp is an investor, entrepreneur, and managing director of Veritas Partners, Inc., a business consulting firm.