For Better And Poorer

Two months ago in this space, I remarked that America always responds best when it is challenged the most. Since then, little has happened to change that view.

As a New Yorker, it‚s been touching to watch the way Americans from practically every state have given their time, help, knowledge and money to help victims of terrorism, most of them in my hometown. Financial advisors have been in the vanguard of these efforts.

Having known many of you for 10 years, I‚m not surprised in the least. Folks at the Financial Planning Association didn‚t waste any time grieving about their canceled conference. Instead, they turned around and tried to coordinate the efforts of many members who were eager to volunteer.

What is sad is that it took the events of September 11 to make Americans realize how lucky we are and how special this country is. But it‚s also human nature for people who have things so good for so long to take their way of life for granted. We don‚t anymore.

What‚s particularly heartening is the willingness of folks all over the country to make voluntary sacrifices. It‚s especially true in many businesses. There have been stories of airline pilots with children ringing up big tuition bills in college taking voluntary 30% pay cuts to help their employers survive. In New York‚s theater district, actors and actresses took 25% pay cuts in mid-September to save their shows. By late October, Broadway theaters were filling more seats than they did before September 11.

If only it were that easy for the nation‚s economy as a whole. In the last 20 months, we‚ve heard a lot about the bursting of the stock market bubble. In the next 12 months, we‚ll hear a lot more about the consumption and debt bubbles as excesses in those areas are wrung out of the system.

Until September, consumer spending had been the one part of the economy keeping the United States out of recession. Since consumption accounts for two-thirds of economic activity, it was sizeable enough to compensate for slumping business investment.

By all accounts, consumer spending has fallen off a cliff since mid-September. Many explanations have been given, including fear of malls, fear of job loss and the wealth effect thrown in reverse by a declining stock market. But my own guess is that people simply don‚t feel like going shopping at a time when the nation has nearly 5,000 victims of terrorism and lives under the threat of further attacks. Moreover, after a six-year, consumer-spending boom, there‚s precious little that most Americans need.

After September 11, what we want isn‚t something we can buy at a store or a mall. We‚ve all learned there are aspects of our way of life that are a lot more precious than materialistic benefits. I only wish there had been a gentler way to arrive at this realization.

For the next year, we‚re likely to witness a purging of the consumption bubble. It seems inevitable this will cause a recession, maybe not a mild one. That‚s hardly a disaster. As many advisors can attest, people need to learn to start saving again.