Updated on 03.04.10

Preparing for a Long Decline

Trent Hamm

On the conference call I had last night with Vicki Robin, one of the listeners (I believe his name was Crispin) brought up an interesting topic of conversation. In a world where globalization is a fact and many jobs can easily be moved anywhere in the world thanks to the power of the internet and the information economy, we’re gradually going to see a global marketplace. In other words, all of the nations of the world will gradually see their average standard of living even out, as many of the workers are competing for jobs with everyone else in the world.

My belief is that, for the most part, the standards of living everywhere else in the world will rise rapidly to meet the standard of living in the United States. However, I also feel that our standard of living here will probably never grow at the same rate as it did in the twentieth century. In short, I think our growth rate will be much lower than that of the rest of the world and may in fact be a slow reduction over a long period of time.

I don’t really think it’s anything to panic about, though. This decline has been happening already for a long time, starting in roughly 1970. Real wages – meaning the amount that people get paid when you get rid of inflation – have essentially remained unchanged since then.

The real change in our financial lives has been the big increase in costs. There are countless services we have today that many of us consider essential – and that we pay for every month like clockwork – that simply didn’t exist thirty five years ago. Cell phones. Home computers. VCRs and DVD players. The energy required to run all of these devices. Internet access. Non-extortionary long distance telephone access. The vast majority of Americans consider these expenses a requirement – and they didn’t exist in 1970.

My prediction for the future is that these trends continue. Real wages won’t go up, but our expenses will go up.

So what do we do? As always, there are two key solutions for this – and they’re solutions anyone can follow. Plus, they’ll benefit everyone regardless of whether they believe such change is happening or not. And these two key solutions are summed up in one phrase: spend less and/or earn more.

We can spend less by recognizing that we don’t need every service or tool that comes down the pipe.

On a regular basis, step back from your life and look at how you spend your money. Keep track of all of your spending for a month. Then, sit down and honestly evaluate it. Where are you spending money on things that really don’t add value to your life? Then, cut them hard.

Five years ago, I was a cell phone addict. I never went anywhere without it. I was constantly calling and texting people. Over the last two years, I have essentially weaned myself from cell phone usage. Now, I rarely pick it up and, when my contract expires, I’m going to simply cancel the phone and get a pay-by-the-minute el cheapo phone. Why? I realized I didn’t actually need what it provided. What I wanted was connection to the important people in my life – and cell phones didn’t really provide that. The only actual need it fulfilled in my life was additional security while traveling and, on rare occasion, contacting a friend to make sure we were meeting up at the correct time and place. I can do that for a lot cheaper with a prepaid cell phone, so I’m going to make that switch in the very near future.

On the flip side of that coin, we can earn more by improving our soft skills.

What do I mean by that? Think about it this way. There are two very competent mechanics in your town that charge roughly the same price for the same quality of work. One of them is very gruff with customers, doesn’t explain repairs well, and doesn’t provide documentation or assistance. The other one is very friendly with customers, explains the repairs in common terms, and gives documentation to his customers. Which mechanic will eventually have most of the business?

This is true in any field. Everyone has hard skills that they can provide to the world. We’re all good at something – and some of us are good at several different things. When you have your choice among people who are good at a particular task, you don’t choose because of the hard skills. You choose because of the soft skills. Do they communicate well? Do they listen well? Are they organized? Are they responsive? Do they spend their time improving themselves or improving the community?

Those soft skills and attributes pay off regardless of what the economy is doing – if anything, they pay off better in a down economy. That directly means employment for you. That means raises. That means job opportunities.

If you really focus on these two things regardless of where the economy is right now, you can handle almost anything that the future economic situation will throw at you. You’re prepared for it.

We can all have a brighter future no matter what happens if we spend some time today preparing for it. The future is an opportunity, not a place of fear.

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  1. Josh says:

    Non-extortionary long distance telephone access? I have free nationwide including in my cell phone plan, and I have a really basic phone/plan.

    I don’t have a landline though I cut that instead of my cell phone.

  2. Lisa says:

    In addition to globalization, the demographics of the USA show a declining economy. The boomers are a rat going through a snake. Boomers will spend less in their later years. When you know you can’t start over you are more careful with money. The peak of spending in a lifetime is 46yrs old.

  3. J says:

    I agree with the overall gist of this article.

    I don’t really understand what “Non-extortionary long distance telephone access” is. Phone calls are ridiculously cheap compared to 35 years ago when you leased a phone from the phone company and there was a regulated monopoly. Not to mention the countless other communication innovations that have come along that were quite honestly science fiction back then.

    However, people 35 years ago still spent money on entertainment, communications and frivolous stuff. They still dug themselves deep debt holes.

    This advice:
    On a regular basis, step back from your life and look at how you spend your money. Keep track of all of your spending for a month. Then, sit down and honestly evaluate it. Where are you spending money on things that really don’t add value to your life? Then, cut them hard.

    I think that came from the Bible, right? Back then it was likely in Greek or ancient Hebrew when they first put it on a scroll or chiseled it into a slab of stone, or baked it into the clay as cuneiform.

  4. Johanna says:

    Quick quiz. Which is the bigger drain on my finances: My $20/month internet bill, or my $444/month health insurance premium (much of it paid by my employer, but if they didn’t have to pay it, they’d pay me more)?

  5. Leah says:

    I think Trent meant that, in the 1970s, long-distance was so expensive that most people didn’t consider it a necessity. Since it’s pretty affordable now (really affordable for many), it’s now a necessity. But, if you wanted to, you could probably switch your cell phone plan to something cheaper and not have the free long-distance.

    Johanna, I definitely think health insurance should be included in the things that are rising in cost at a disproportionate rate. I pay for my own health care, and premiums have steadily gone up at ~9% a year. Of course, every year, they also give me the option to keep premiums the same but reduce my benefits significantly. And health insurance is a really hard one, since it is one thing I truly do consider a necessity.

  6. Mule Skinner says:

    I’ve worked with a number of guys from India, all the way back to 1990. They want our lifestyle and they’re willing to work hard to get it. We are no longer royalty by right of citizenship.

  7. KC says:

    You need to read the Post-American World by Fareed Zakaria. He basically says the same thing – we are in decline. It’s an interesting book and makes a lot of sense. We seem to fear being overtaken in global dominance by other countries, but in reality former world powers (Britain, Spain) haven’t done too poorly. Basically we have to take care of ourselves and not expect our country and it’s economy to carry us on their coattails. We need to get a good education – find good work – work hard – save your money and invest. And when you think about it that’s really been the way to success for many years – with or without a booming economy.

  8. partgypsy says:

    I’ve suspected this for a while now. Even though we have a low fixed mortgage, many of our other fixed expenses (medical, insurance, energy, food, property taxes) since I’ve started tracking in 2006 keep increasing. We are still spending less than we earn but I wonder if that will be true 5 years from now, as the wage increases for the cost of living don’t seem to keep pace with the cost of living. A concern as our mortgage is lower than what we would pay in rent and don’t have new cars, expensive cable or other frivolous bills to cut.

  9. partgypsy says:

    My question if this is true, how will this be reflected in the stock market? Should we continue to expect the stock market to go up?

  10. Adam says:

    We’d really have to look at what costs that average households use regularly have outpaced the inflationary increase in wages.

    I’m sure health insurance is one of the biggest culprits.

    As for telephones, I don’t think so. That would seem to be cheaper now relative.

    Of course, we also have cable and internet now, things that didn’t exist back then. But people are spending a lot less money on music now than they did back then–I used to buy a few CDs (records/tapes/8tracks/whatever) a month at my peak, now I pay for a few singles on itunes a month at a buck each, so perhaps in total the “entertainment” cost is about even?

    I think our increase in quality of living will come from cheaper and better technology gains rather than wages increasing beyond inflation. Compare what your cheapest tvs, computers, cell phones, ipods and that can do from the most expensive versions of these things 10 years ago for instance. Even cars are getting much more reliable and more fuel efficient, used cars are a much greater value now than 20 years ago.

    So we’re not better off monetarily but what that money can buy is way better.

    Hope that makes sense.

  11. Kat says:

    Health care costs outpace inflation because the advances have been so great. Surgeries and medicines are a lot more advanced now than in the 70s. Life expectancy now is longer, more babies born in developed countries live (and, now some can conceive even if in the 70s they would have been sterile). Worth the cost? At some point will the cost outpace inflation to the point of no one affording it (like a housing bubble)?

  12. ted says:

    The whole real wages thing as a metric of compensation doesn’t make sense.

    People are getting more of their pay through health care/other benefits (your 401(k) match isn’t actually ‘free money,’ it’s just money that isn’t going to your cash salary.) If you look at the 90s, when health care costs were held down to around inflation, you saw a lot of real wage growth. That’s because productivity gains were captured by salaries, not rising health care costs. Compensation is a pie, of which your cash salary is only part.

  13. Moby Homemaker says:

    I disagree that globalization “isn’t a big deal”…that certainly sounds like the inklings of communal new world order shizz to me.

    It’s great that we are all prepared to “handle it”…I’d like to do better than merely survive. Thanks, Boomers!!!!!

  14. Bill in Houston says:

    I also agree with Kat’s comments about health care costs rising due to the advances. I had a heart attack ten years ago (I was 38). I thought my care was state of the art then, but now? Hell, I had a cardiac MRI on Monday. Waiting time? Essentially zero, because I made the appointment Friday afternoon. I have access to the best care (living in a large city with good services helps). Nearly all my “state of the art meds” from ten years ago are now generic, resulting in a savings of about $200 a month.

    Let’s look at essential services. Cable and satellite companies would have you believe that you MUST use their services to get television today. You can actually buy an HD antenna and still get “free tv.” I bundled my land line and cell phone when I adjusted my last cell plan (we were never using 1000 minutes a month so we dropped to 700, and picked up a “home phone” for the difference. We make ALL long distance calls on that because we have unlimited minutes.

    My 46 inch television was $2500 in the summer of 2007. I bought it for $950 a year and a half later. The 32″ model I originally wanted but held out for now costs the same as an old 27″ CRT television did ten years ago. I first saw it at $1200 in 2005.

    I have more computing power on my desk than the entire world had up through 1960. It cost me $600.

    Technology always gets cheaper, keeping the standard of living higher. My car gets routine maintenance (oil change, fluid change, lube). I have not had any major repairs after 60,000 miles. My first new car, back in 1980, had three clutches, a transmission, a carburetor replacement, and three sets of tires by the time I hit 60,000 miles. I do admit that I will need to replace my tires with 60,000 miles on them soon, but that is more due to concerns with the age of the tire (plenty of tread), and I will replace my timing belt.

    My parents are currently on a cruise to the Antarctic peninsula. They’re retirees. They’re in their mid-70s and still active. Only the überwealthy did that 30 years ago.

    Another way I’ve saved money on our “new” (1977 model, bought in late 2008) house is to use some of my EE skills from college so long ago in wiring repairs. I’ve learned the basics of plumbing as well.

    So, is our standard of living really declining, or is it just a shift in our standards?

  15. chacha1 says:

    @Bill, I think you make some extremely good points.

    I wonder if we would think we were so badly off if we didn’t watch an average of three hours of television per day … one hour of which is probably “news” giving us a litany of the latest disasters and conspiracy theories; one of which is probably a reality show in which people behave disgustingly for the chance of winning some money; and one of which is probably a fiction show in which people who work in coffee shops can somehow afford enormous lofts in NYC.

  16. Hmmm, maybe, but life is complex. Often the logical answer doesn’t happen, and sometime the opposite flourishes.

    A few years back I was telling everybody that a local telemarketing firm would go out of business now that a federal “do not call” list exists. But today, instead of having 1 small building, they have occupy the small building and 2 huge buildings.

    Who would have thunk it (as my grandpa use to say)… We’ll see :)

  17. George says:

    @chacha1 – In those 3 hours of TV, how many commercials are present?

  18. chacha1 says:

    @George – exaaaactly. Not only is the content mostly lowest-common-denominator and unrealistic, it’s larded with promotions. (On top of all the acquisition-aspirational subtext in the shows themselves.) And you’ll note how the models in the fast-food ads are never fat.

  19. Amy H. says:

    @Bill — very interesting and thought-provoking comment! Thank you. It’s a very engaging exercise to go through what we have access to nowadays that we didn’t used to have.

    Not specifically re: purchasing power or the falling costs of technology, but I was just thinking on the walk to work this morning what neat business concepts Netflix and ZipCar are. Both improve my quality of life and both are very inexpensive and efficient compared to how I used to rent movies or rent cars.

  20. kristine says:

    Interesting paradox that we now pay for “clean” water to drink, when it used to be free! We pay extra to have our produce sans poisons, and out flour not bleached, and our coffee filters not processed white, and for our name NOT to be in the phone book! It is indeed a strange world we live in-paying for things NOT to be done! Heck we even pay extra to pay back a loan faster!

    Everyone’s standard of living goes up quickly only if the “average” is graded on a curve that SAT test-takers would die for. Average usually does not usually end up in the top 10% of the values, especially when the top 10% are outnumbered millions to one.

    I am a pragmatist, and will spend my free time learning lacking life skills to become more self sufficient: basic carpentry, electricity, plumbing. I already know how to sew and cook, and grow food.

  21. CB says:

    If everyone has the U.S.’s standard of living (in terms of stuff), we’d need multiple planet Earths to provide it. I forget the number.

    Actually, haven’t we been somewhat railroaded into living in “communities” that lack communal values and require a car to get to anywhere? I could bike, if the massive amount of cars were reduced. The fumes alone make me nauseous. Where I last lived where I could bike, the cost of a shack was about a million.

    As for TV, I make the decision at age 13 to not watch it is there was anything else to do. As a result, I’ve seen little TV. We had cable for awhile, but it was the trashiest TV I’d ever seen. The news media is now consolidated and owned by five corporations. Whatever politician or war they are selling, I am not buying.

  22. CB says:

    Erratum: “made the decision”

    And…I am told by immigrants from so-called “third-world” countries how much they miss the rich tapestry of human life and relationships that is missing here. Sure, one can buy a car and drive around on the freeway and one can buy a lot more trinkets from China.

    I remember leaving my so-called great address (expensive rented shack in a desirable zip code) and going back to the little town where my mother’s family lived. It was much more engaging because of the human connections.

    I could, however, at least walk or bike ride places I’d want to go (and run all of my errands) when I lived in the over-priced city.

  23. JonFrance says:

    Standard of living is not a zero-sum game; it’s not because China and India improve themselves that we (US or Europe) get poorer. The only thing that will determine whether the US improves or declines is what Americans do about it. If Americans stop innovating, don’t work, and allow their communities to fall apart, then America will decline. If people work hard, innovate, and try to make their communities better places, then it will improve.

  24. Great article–title sounds a little dreary.

    I don’t think things will slow that much, regardless of how global the economy becomes.

  25. deRuiter says:

    “Heck we even pay extra to pay back a loan faster!” Not if you negotiate this clause out BEFORE you sign the paperwork. Also depends on terms of the loan. Bad loans have the interest ADDED to the principal up front to determine the total amount of the loan. NEVER AGREE TO THIS TYPE OF LOAN and never agree to a prepayment penalty clause. If you prepay your mortgage it will give you years and years of not having to make the payments so the money not being spent for the mortgage can be used for other things and you can live better.

  26. Jonathan says:

    Trent, I think this is a great article. The issue that I see is that people in the US have come to expect their standard of living to continue increasing. While people live longer lives and have more things today than generations ago, I’m not convinced that people are actually happier. In other words, I suspect that the improved standard of living that we have today is more illusion than reality. However, people continue to pay more and more for this illusion of a better life. I’ve decided to take the opposite approach, and have been working to simplify my lifestyle. The more I do this, the happier I find I am.

  27. Stephanie says:

    We are all running faster (and working harder) just to stay in the same place. Our “currency” is worth less and our government keeps getting us further and further into debt. Cutting household and personal costs may get you through in the short term….
    This is not a coincidence…it’s right on schedule…welcome to your NWO…

  28. Claudia says:

    #13-I’m angry and I’m not holding back – I am so sick of immature brats like you blaming the baby boomers for all your ills! Your parents, the boomers worked hard to fulfill your every whim. Your parents probably sacrificed their own well-being (i.e. retirement savings) to buy you the perfect jeans, the video game consoles, and games you just had to have, too many toys, schlepped you around from school to soccer practice, etc. etc. The whole problem is that boomers tried to be such good parents and give their children what they didn’t have that they created a generation of spoiled rotten brats! Unfortunately, in trying to give you love, all brats like you learned was not to love back, but to think you had some special entitlement owed you by the world.

  29. Claudia says:

    Trent- Good idea about dumping the cell phone. We live in a rural area and do not always have coverage, so dumping the landline would be dumb. But then, my son lives in NYC and coverage can be iffy there too! Our landline long distance is less than 5 cents a minute on our landline (not much more for overseas calls, So nice to be able to call and hear without the scratchy up and down connectability of cells.
    We have 2 pay-as-you-go phones that cost us just under a $100 a year. We rarely have to buy more minutes as there is always a double minute promotion when we buy the yearly coverage. Neither one feelss the need to have to talk to someone 24/7.

  30. MrzFitz says:

    @ Bill – great comments! and the other reader who commented on watching TV an average of 3 hours a day, so true. Obviously everyone is different. I’m sort of a news junkie but have to remind myself of the negative slant and fear they plant. You can see it in their last sentence before commercial breaks – they say something to grab your attention so you’ll be hooked to stay through the break. Then when they get to the real article it’s a watered down version of the hook they planted.

  31. partgypsy says:

    Claudia, you got it backwards. Kids never asked for soccer memberships, acid washed jeans, separate bedrooms, etc, but it is true that people get used to what they are given, and that is not necessarily a good thing. I’ve seen people use children as the latest accessory in how they are dressed and what they are given, but that is not coming from the children. It is coming from the parents. It is the parent’s responsibility to set limits, and if they don’t it’s the parent’s failing, not the children.
    The well-off baby boomers I know, unfortunately, I don’t see sacrificing their lives (or even quality of living) for their children. Most prefer to be spend money on their homes or on vacations than spending time with their kids or watching their grandkids.
    If you don’t agree, just look up some stats in both how fortunate baby boomers were regarding growth of economy during their earning years, and what they spent and are still spending money on.

  32. DiscoApu says:

    Claudia: The boomers have the biggest entitlements in existence. Pensons, Health Care costs, and SSN obligations are out of control. Yes you paid in, but the amount that you paid is like buying a hot dog and expecting a porterhouse steak. But thats ok, because the baby-boomer congressmen and senators you voted in were cool with passing all this debt to their kids.

    But thanks for the nintendo and the NWA CD, it makes up for me having to work for less while I pay for your 30 years of retirement.

  33. Nicole says:

    The boomers have also had lower adjusted salaries than other generations because there are so many of them. Large cohorts generally make less than they would have had they been born in a smaller cohort.

    In terms of entitlements, it’s really the depression generation that is doing well– they paid in much less than they’re getting out. But hey, they had to live through the depression.

    Let’s stop the generation warfare! Think of the children.

  34. Claudia says:

    Well, I never was one of the baby boomers who made big money, so I wouldn’t know about that. As to 30 years of retirement, I’ll never be able to afford that.
    I see so many of my friends children and at least one of my own, who never considered that it took 30 years of hard work before we had a house other than a dump -although, I’m sure there are still a lot who would think my current home is a dump, too–no stainless steel chef-grade appliances, granite countertops, 52″ flat panel tvs, etc.- but the Generation X expects all that right out of college. Gee, who do you think got us into the housing mess? All the 20 and 30 somethings, who thought they needed a McMansion and took out interest only loans!
    If anyone thinks that anyone gets out of Social Security what they put in, they are delusional, I’ve got news for you, you will get out much more than you put in. That SS will not exist is a myth, check the facts, if nothing changed, it would last far beyond your years of collecting. In the 30’s when it started, the average person didn’t ever collect and there were a lot of workers for each retired person. That’s changed, so should Social Security, we ALL should pay in more and the retirement age needs to go up considerably. I won’t be retiring anytime soon, maybe when I’m 70, but I doubt it.
    All those baby boomer entitlements, pensions, healthcare, give me a break! Show me the facts! The highest amount of SS you can get now, is about $1600 a month, can you live on that? Out of that you pay $300 for Medicare premiums, plus you have to have a Medicare supplement, the first baby boomers have just begun to collect SS, very few have other pensions.(I’ve worked with the elderly, so I KNOW the facts!) There may be some who get huge pensions, it won’t be me or anyone I know!
    I tried to instill good values in my children, I’m sure I made mistakes, so will you with your own, I’ve never met a perfect person yet.
    Instead of blaming a select group of people, why don’t you do something to fix the problem?
    Gee, I’m just reading the rules as to constructive criticism and negativity. I always try to be positive, but sometimes it’s real hard, when confronted with so much negativity!
    I so agree, let’s stop the generation warfare, working together is supposed to be the key to success is it not?

  35. gail says:

    Forget all the rhetoric about what “generation” you are from and whose fault it is for the state of affairs in our country. Healthcare premiums and outsourcing jobs to other countries are to blame for the mess we are all in.

  36. almost there says:

    Watch Michael Ruppert’s “Collapse”, or read his
    “Crossing the Rubicon: The Decline of the American Empire at the End of the Age of Oil”. Yes, we are in a decline. I have read studies that adjusting for inflation, 1973 was the year that the average worker earned the most for his income/spending power. If you believe the employment (un) statistics and the inflation statists the federal government puts out you are sorely mistaken.

  37. imelda says:

    The real issue here is how all of you seem to think that America has the highest standard of living in the world. We don’t. According to the UN Human Development Index, we’re #13. Along a similar trend, our average life expectancy is pitiful. We’re number FORTY-NINE (49) in the rankings. Wake up, people. We don’t have it all that great.

    You can thank our lack of universal health care and other “socialist evils” for that. :-)

  38. kristine says:

    #36, I like Kunstler’s “The Long Emergency”.

    I agree about simplification. The closer your actions are to result, the happier you are. Many examples: working to pay for child care vs. staying home and doing it yourself. Growing food instead of working a lot to buy organic. As soon as my kids go to college, hubby and I are getting a small place in the woods, and trying to be as self sufficient as possible. It’s exciting to know that my every action will matter, and bureaucracy will be minimized in my life.

  39. Mule Skinner says:

    @Claudia wrote “The highest amount of SS you can get now, is about $1600 a month, can you live on that?” I currently get over $2000.

    Could I live on it? Well, I have other income so I haven’t actually tried, but I think I could.

  40. almost there says:

    #38 Kristine, Thanks. I checked it out of the library.

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