Keeping Up with the Joneses Can Put You Behind

[FRED]

Keeping Up with the Joneses Can Put You Behind
July 7, 2006 (Laura Rowley - Yahoo! Finance)

You're watering your lawn in your worn-out shorts and flip-flops on a warm summer weekend when you notice your Armani-clad neighbors opening the door for their caterers.

They've ordered trays of gourmet food, bottles of top-shelf alcohol, and a huge tent for what will clearly be a midsummer night's dream party in their manicured backyard. Eyeing their shiny, silver BMW convertible in the driveway and their new family room addition, you think, "How can they afford that? What am I doing wrong?"

Anxiety over how our financial lives compare to others' is the subject of a recent book, "Green with Envy: Why Keeping Up with the Joneses is Keeping Us in Debt," by journalist Shira Boss. "How we fit in and how we measure up are such an integral part of our financial well-being," she says. "We construct a fantasy world around those who have more money, and glorify their lives."

AntiSpin: In a stagflation, everyone paddles harder and harder just to stay in place. To businesses, input costs of energy, insurance, and to a certain extent wage rates keep rising while competition and excess capacity limit how much of those increased costs can be passed on to consumers. Households experience similar problems with rapidly rising costs but only modestly rising incomes (falling in real terms), plus as interest rates rise the amount they can earn on savings is increasing at a slower rate than the cost of credit; interest rates on CDs, for example, will lag the rate of increase on the cost of an ARM. Plus households in this stagflation have to deal with the housing bubble hangover: high property taxes.

This book "Green with Envy: Why Keeping Up with the Joneses is Keeping Us in Debt" represents the leading edge of the kind of social change that we should expect to see in a long term stagflationary environment. There will be a boom in books of this type.

Real incomes for most American's have declined for years but in a low interest rate environment that occurred between 2001 and 2005, households were able to make up the difference with access to cheap and easy credit. Now that the cheap and easy credit is drying up, there is no place for the middle class to turn but toward cultural change, a lowering of expectations. Look for the following trends: anti-materialism, anti-consumerism, "down-shifting," and other concepts that help everyone come to terms with the reality of diminished opportunities. Look for SUVs and MacMansions to become symbols of greed and waste.

Most of these cultural changes will range from benign to entertaining. However, young people with little or no employment history and the already economically marginalized are already suffering. Social movements within these groups may be less entertaining. Expect a rise in urban violence and a general increase in crime. Early warning signs in your neighborhood: an increase in unartistic graffiti and other forms of vandalism. Graffiti says: "I'm angry."

[jk]

europeanization

Now that the cheap and easy credit is drying up, there is no place for the middle class to turn but toward cultural change, a lowering of expectations. Look for the following trends: anti-materialism, anti-consumerism, "down-shifting," and other concepts that help everyone come to terms with the reality of diminished opportunities. Look for SUVs and MacMansions to become symbols of greed and waste.

Most of these cultural changes will range from benign to entertaining. However, young people with little or no employment history and the already economically marginalized are already suffering. Social movements within these groups may be less entertaining. Expect a rise in urban violence and a general increase in crime. Early warning signs in your neighborhood: an increase in unartistic graffiti and other forms of vandalism. Graffiti says: "I'm angry."

sounds like the u.s. will look more like europe. slower economy, higher prices, underemployment, angry unemployed youth [think riots in france]. maybe we'll even have a guest worker program - we know how well it's worked in europe!

[BK]

We already have a guest worker programs

H1 Visas for Companies who don't want to employ US born Engineers (the kind of engineers who need to save for retirement and send kids to College) and Illegal Immigrants for any company that has alot of low skilled labor needs.

The Great leveling of the playing field (economies) continues.

Look for voters to wake up in the future and realize the absurdly overly generous healthcare and pension they have given government employees (perhaps smaller government will be a bi-product of our frugal futures?

Perhaps a future frugal President will present a new education platform - "Lots of the low IQ and the problem Children will be left behind", "resources will be focused on the best and the brightest children- thats where the future lies".

[Goldenhands]

The people speak...Washington better start listening

Graffiti says: "I'm angry."

On a recent trip across the Midwest I was struck by the obvious increase of Graffiti on the several trains and fixed structures I passed. At the same time it crossed my mind this is an expression of frustration.
I am a Contract Engineer by trade..in Aerospace to be exact. This June, when the happy gathering of Grads, still in cap and gowns was in progress I had thoughts of my own time then, and of how "the deal" was still offered.
That deal was.."remain loyal to us, your company, give your very best efforts and work overtime without complaint and we will take care of you through good and bad times, offer you Medical and Life Insurance at a fair price, a secure Pension, later came offers of a 401K, there will be no layoffs, no obscene CEO Golden parachutes, and after 30 or more years time a heartfelt thank you for your labors. You will get badges and nice senority pins made of gold with pretty stones in them and a better parking spot the longer you stay. You'll even get a chance one day to be the Boss if you like. Most of all..you will be part of The Family".

Sometime in the 70's The Deal started to become The Lie.

I'm going out tonight to a Mega-Corporate Wal Mart 24/7 minimum wage pay store to buy a can of EPA approved aerosol paint with my Administration devalued US Currency and try to find an OSHA/NTSB approved Union Pacific railcar that is not yet covered in rightfully desperate American youth frustrations, and add some of my own from the near Geritol Generation.

I agree with this line...and there is every reason to have anger...many of my co-workers have been seriously hurt by belief in what was considered "basic and stable". It's sad to say the least.

[metalman]

Re: Keeping Up with the Joneses Can Put You Behind

It's gonna get worse and worse, sorry to say, as the jobs for young people dry up and older folks demand the money they paid into the system.

Speaking of bridges and tunnels, the US has to fix all of the infrastructure that's been rotting away for the past six years as we've cut taxes to keep money in consumers' pockets so they can go to WalMart and buy made by Chinese slave labor DVD players. I've seen estimates that'll cost us about $1 trillion over five years with NO increase in GDP, just staying even, like fixing the broken roof on your house doesn't make it more valuable but just as valuable (maybe) as it was before you let if go. How are we gonna pay for it? Same way as the Iraq War? Borrow it? How long can we keep this keep up?

[jk]

Re: We already have a guest worker programs

Look for voters to wake up in the future and realize the absurdly overly generous healthcare and pension they have given government employees (perhaps smaller government will be a bi-product of our frugal futures?

Perhaps a future frugal President will present a new education platform - "Lots of the low IQ and the problem Children will be left behind", "resources will be focused on the best and the brightest children- thats where the future lies".

hard to imagine a lot of votes for channeling more resources to "the best and the brightest." especially as we're seeing greater economic disparities and increasing concentration of wealth.

it's also hard to imagine a "frugal President" winning many votes from the vast numbers of people who will feel that they've been cheated of their "entitlements." [great word, "entitlement."]

i also agree with metalman's and goldenhand's observations about the growing sense of anger and frustration. happily, i think the wheels are falling off the current "big government conservatism," with its autocratic assertions of executive power and "more money for the rich" economics. the bush administration's proclivity for accusing its critics of [more or less] treason could be really dangerous if it became the channel for the expression of the broadening frustration. but it's easier to imagine a swing to big government liberalism spending lots of printed dollars, than to a frugal regime of some kind. i just hope the inflation doesn't reach wiemar proportions.

[BK]

Re: Older folks - get more than the money they paid in

Older folks who are 50 years older and who participate in a Pension plan get more than they deserve. This is a fundamental problem with our existing economy - same for Europe. No US employer who is saddled with a tradional Pension plan can compete. This leads to employers moving production over seas or being uncompetitive and going out of business.
Lets keep in mind that the 50 plus set typically have a very low cost of living because they were able to acquire a primary residence before the price explosion.
Yes, the younger generations will pay the tab for these overly generous pensions with reduced employment opportunities here in the US.
All traditional Pension plans (including the State/Local/Federal) must be converted to Cash Balance plans. But, it will take a fiscal crisis to make this a reality - in the future look for the Commonwealth of Massachusetts and other states filing for bankruptcy protection (to protect them from the ridiculous pension obligations of the Massachusetts Pension Fund).

[jk]

Re: Older folks - get more than the money they paid in

Older folks who are 50 years older and who participate in a Pension plan get more than they deserve. This is a fundamental problem with our existing economy - same for Europe. No US employer who is saddled with a tradional Pension plan can compete. This leads to employers moving production over seas or being uncompetitive and going out of business.
Lets keep in mind that the 50 plus set typically have a very low cost of living because they were able to acquire a primary residence before the price explosion.
Yes, the younger generations will pay the tab for these overly generous pensions with reduced employment opportunities here in the US.
All traditional Pension plans (including the State/Local/Federal) must be converted to Cash Balance plans. But, it will take a fiscal crisis to make this a reality - in the future look for the Commonwealth of Massachusetts and other states filing for bankruptcy protection (to protect them from the ridiculous pension obligations of the Massachusetts Pension Fund).

i have to say it's a bit of an odd experience for me to be reading your post, since i'm a member of that 50+ set. but in general, yes, i agree. i moved into my first and only house in 1979 and at the time its cost was a reach. the fact that it is now nominally more valuable doesn't do me much good except for he equity-backed debt i've acquired. i've been making mortgage payments for 27 years, and now, with refinancings, my mortgage plus my equity line debts are about 4 times the original mortgage. [added an addition after having kids, payed/paying for college for 3 kids - that's where it went, no bling.] so i'm not sure my cost of living is so low.

since i'm self-employed i don't have to worry about anyone reneging on any pension promises. it's on me, not that i'd mind getting more than i deserve if i could only figure out how.

but in general, for u.s. based employers, the issue is not just pensions, it's also healthcare. auto factories across the border in canada are a lot more attractive, for example, because of government health insurance. i don't know why gm hasn't gone to zero yet -- its liabilities are such that it is really owned by its pensioners and healthcare recipients. it's really an insurance and finance company [the only place it makes money], with a loss leader auto business around which it built its finance business. [gmac is also the proud holder of my current first mortgage!]

bill gross' monthly piece a couple of months ago was titled "as gm goes, so goes the nation": big entity, made lots of future commitments about pensions and retiree health care, now about to hit the wall at the same time that its products have become increasingly uncompetitive. hmmm.

even without these problems there is a demographic problem with social security. actually there are several demographic problems. people are going to live a lot longer than anybody planned on. and the ratio of younger people in the work force is going to get too low. finance and money flows don't even matter in thinking about these things. if there are p producers in the economy and c consumers [including workers in their consumption roles], then if c/p gets too big you've got a problem. there's just not enough stuff being produced to go around. so then more stuff has to be imported - our assets had better be pretty valuable in global terms to allow us to sell them off for enough to support ourselves.

[BK]

Re: Healthcare and pensions and liquidity

What has been driving healthcare higher and higher. Too much money in the system. If overly generous healthcare Insurance programs become the exception rather than the rule - the prices of Healthcare will fall.

Insurance (healthcare and dental) is what has been driving the cost of these basic needs higher and higher. Remove the liquidity and prices will fall - or at least follow regular inflation rates and not the current premium.

I'm at heart an optimist and hope the healthcare crisis will be minimized by lower prices as a result of fewer overly generous plans.

As a self employed person you end up competing for Healthcare services against people who work for fortune 1000 companies and government agencies (these folks have ridiculously generous insurance plans).

During times of frugality - people learn to say no to unneccessary treatments and over priced services.

[jk]

Re: Healthcare and pensions and liquidity

What has been driving healthcare higher and higher. Too much money in the system. If overly generous healthcare Insurance programs become the exception rather than the rule - the prices of Healthcare will fall.

Insurance (healthcare and dental) is what has been driving the cost of these basic needs higher and higher. Remove the liquidity and prices will fall - or at least follow regular inflation rates and not the current premium.

I'm at heart an optimist and hope the healthcare crisis will be minimized by lower prices as a result of fewer overly generous plans.

As a self employed person you end up competing for Healthcare services against people who work for fortune 1000 companies and government agencies (these folks have ridiculously generous insurance plans).

During times of frugality - people learn to say no to unneccessary treatments and over priced services.

bk, i'm afraid you've been sold a bill of goods by the republicans and the health care insurance industry. the problem is NOT people overutilizing services. this has been the phony driving force behind e.g. health care savings accounts and also behind managed care ["let's stop overutilization."] most people don't like going to the doctor and most will avoid it, often to their own detriment.

there are 2 [count them, 2] real problems in health costs: 1. end of life care - an enormous amount of resources are poured into the last 60-90 days of torment for people in the process of dying, in part [but only in part] because doctors are afraid of being sued if they don't do every damned last thing available; 2. red tape/bureaucratic paper work. administrative expenses eat up 25% [A QUARTER!!] of ALL healthcare spending. this money is mostly spent by insurers trying to deny and minimize care so as to minimize their "loss ratio." interestingly, the so-called "loss ratio" of health insurers represents the amount that is actually spent on health care.

i have reluctantly, in only the last few years, come to conclusion that the only way to have reasonable health care at a reasonable cost is to go to a one-payer, i.e. government run, health system. i didn't want to think it, but if you look at the medicare system and the veteran's administration system, for all their deficiencies, they are much more efficient than the private system. administrative costs there are in the single digits.

[Jim Nickerson]

Re: Healthcare and pensions and liquidity

there are 2 [count them, 2] real problems in health costs: 1. end of life care - an enormous amount of resources are poured into the last 60-90 days of torment for people in the process of dying, in part [but only in part] because doctors are afraid of being sued if they don't do every damned last thing available; 2. red tape/bureaucratic paper work. administrative expenses eat up 25% [A QUARTER!!] of ALL healthcare spending. this money is mostly spent by insurers trying to deny and minimize care so as to minimize their "loss ratio." interestingly, the so-called "loss ratio" of health insurers represents the amount that is actually spent on health care.

i have reluctantly, in only the last few years, come to conclusion that the only way to have reasonable health care at a reasonable cost is to go to a one-payer, i.e. government run, health system. i didn't want to think it, but if you look at the medicare system and the veteran's administration system, for all their deficiencies, they are much more efficient than the private system. administrative costs there are in the single digits.

jk, I have truly immeasurable respect for your knowledge of investing and finanace and to the contributions you have made to these fora; however, I offer some difference of opinion in regard to how many problems there are with health care in the US today--there are many more than two--though the two you enumerated are certainly true to one degree or another.

I think the single biggest problem with health care is that almost all decisions that add expenditures to costs are made by health care providers, this would be primarily physicians (as you are) and other lesser providers, dentists (as I was) podiatrists, chiropracters, etc. Doctors of any ilk, I believe, have too little knowledge about what things--other than their own services--may cost, and I suspect that most care less about whatever it is that is ordered or prescribed costs. The reason they do not know is that seldom are they ever faced with paying the costs themselves, and the reason they do not care is they are not faced with paying the costs, and if and when cirumstances were to mandate their paying the costs, the proportion of that cost to their incomes is significantly smaller than it would be for an average American.

In health care in the US, there is little to no capitalism at play with regard to competition breeding lower prices. It is totally unfeasible to actually "shop" for prices as the system has evolved. Even were it feasible with regard to the time expenditure (for patients or doctors) to actually obtain comparable prices between one provider and another, the patient is and will always be at an insurmmountable disadvantage with understanding of what it is he/she might actually be shopping and for what it is that a tenative fee might be offered were it possible to get such a quote.

The unlimited "for profit" motive needs to be removed from the heathcare equation regarding doctors, hospitals and everything else including drug development, and the expenditure on all sides associated with the costs of the malpractice aspects of health care. This is not to say people are not possibly hurt by health care and deserve compensation, but the present system is untenable in this regard.

Some tout health care in the US as being "the best in the world." It cannot be true when 48 million do not have health insurance and some significant portion of those do not receive anything other than the direst of emergency care whether it is paid for or not.

I am in total agreement with jk in that the answer--when things become so unbearable as to mandate an answer--will be some national health care scheme. There is no system in healthcare about which there are not significant complaints be it the private system or a government run system. I am not for government running anything more than it already does, but the final answer with providing all people with any sort of reasonable health care is going to finally gravitate to the system being a one payer system under government control.

If anyone wishes a bit more "opinion" on this, email me and I'll send you a 15-18 page essay I was provoked to write in order to end my obsessing over this problem. It is not complete, but it has a different perspective than you may read in most places, and had I the fortitude and enthusiasm I could finish it with 10-20 more pages--which someday perhaps I will finish.

[jk]

Re: Keeping Up with the Joneses Can Put You Behind

sure, the "agent" issue - docs choose the treatment but don't pay the bill - contributes. but medicare has overhead costs of about 2%, versus 25% in the private sector. also medicare is forbidden to use its bargaining power with the pharmaceutical companies -- i wonder to whose advantage ? duh. the last year of life costs 27% of all medicare expenditures. thus nationalization to reduce overheads, using bargaining power with big pharma, and focusing on when to pull the plugs are all straightforward ways to get big savings. the "agent" issue is harder to get at.

[BK]

Re: Reduce transaction costs reduce the number of transactions

JK,
They need to reduce the number of transactions per person - for example, there are many routine office visits that people should pay with cash - this would dramatically reduce the number of transactions.

National healthcare is a wonderful system. I have lots of friends in the UK - thank got they are wealthy and can buy private healthcare services rather than receive the lower quality National Care offerings.
End of life care is a huge Profit center for hospitals. In our culture we often describe the death of an 80 -90 year old - as he died from cancer!!!! No mention that the ravages of old age result in these horrible deseases that ultimately destroy our bodies.

Yes- I get all my information for the national republican committee - Republican politicians are so conservative on fiscal matters that I just love them all......President Bush must be running out of ink for his Veto pen set.
;-)

[Jim Nickerson]

Re: Reduce transaction costs reduce the number of transactions

JK,
They need to reduce the number of transactions per person - for example, there are many routine office visits that people should pay with cash - this would dramatically reduce the number of transactions.

National healthcare is a wonderful system. I have lots of friends in the UK - thank got they are wealthy and can buy private healthcare services rather than receive the lower quality National Care offerings.
End of life care is a huge Profit center for hospitals. In our culture we often describe the death of an 80 -90 year old - as he died from cancer!!!! No mention that the ravages of old age result in these horrible deseases that ultimately destroy our bodies.

Yes- I get all my information for the national republican committee - Republican politicians are so conservative on fiscal matters that I just love them all......President Bush must be running out of ink for his Veto pen set.
;-)

BK:

I would suggest that going into a health care provider's office, especially if one has insurance, and as a means of reducing health care expense choosing or being made to pay for the visit in cash by itself would be a huge mistake and would only add significantly to the cost of health care in the US.

Because neither my wife or I work, our health insurance has been relatively high deductible insurance--$5K for me and $2.5K for her, the largest we could get at the time. 2 years ago, she developed a problem with a nerve in her dominant left hand. Saw 5 doctors, had 4 MRI's, and one operation as an outpatient. The exact charges for all this were $16508. All the providers were BC/BS PPO contractors, except for an anesthesiologist. Total charges for doctors, radiologists, and outpatient surgical center were discounted by exactly $9,644.79 leaving $6,924.21 that the providers ultimately were paid. $2,500 by us, and $4424.21 by the insurance company.

One thing from all this is patently clear to me, you better have insurance to protect you from the liability of all that you can be charged when seeking healthcare. Without the write-downs by the insurance companies we would have been liable for $12,144.79. I believe if you had an insurance contract that used the mechanism of the patients paying for office visits to save money for the insurance company by reducing the number of claims it had to process, it would cost the patient a whole lot more, and the nations total health care expenses would rise even more dramatically.

Nothing short of an nationally mandated heath care system where all payments are determined by the payor, i.e. I believe it will be the government, will ever work to reduce the costs of health care in this country.

[BK]

Re:Healthcare - large companies - driving prices

Jim,

I agree - I fear the consequences of my family being w/o employer provided Healthcare Insurance.

We pay cash for my Childs pediatrician visits - many of the Doctors in our area would except 'New' patients with our Employer provided Insurance plan. We live in an area with a lot of Giant corporations have their HQs and there are lots of Government employees.
**This was my wake up call - Doctors know they make more money from Patients with the more generous Insurance plans. As long as there are lots of people with these types of plans the Medical Industry can target their pricing/offering to this crowd. The Heck with the rest of humanity.

The insurance plans that drive up the cost of Medical Care. Generous Medical Insurance plans have allowed/encouraged Medical care costs to Sky rocket.

I would also agree that my views are "pie in the sky" and may never become reality.
But, look what the governement as done to the secondary Mortgage Market with creating and running FannieMae/Freddi Mac. Look at the Social Security crisis that is on the horizon.
I just can't see a future where Medical costs are brought under control by a single payer Nationalized system run by the Federal Government (an ultimately controlled by a voting public - w/o any sense for fiscal discipline).