As the recession continues and perhaps even deepens, it is difficult not to wonder about the next cycle. It appears that the economy will continue to worsen as we have at least two drivers that continue to hammer the economy in the United States.
First, residential real estate values have taken a significant hit in most parts of the country. The subprime mortgage mess encouraged home ownership for those who were not qualified. The result was an increase in home prices nationwide over the past 8-10 years. As these borrowers are defaulting on their mortgages, banks are selling these homes by the thousands at substantial discounts. The result is lower home prices nationwide. Fortunately, with cheap money it is possible for homeowners to refinance and lower their borrowing costs. Hopefully, we will be able to work through this inventory of homes before we enter into a vicious cycle where house prices sink further because buyers bail out of existing mortgages and buyers are reluctant to enter the market at any price.
Second, commercial real estate values have held up relatively well thus far. However, it appears that the continued recession is beginning to hurt many in the commercial real estate business. Consumers are simply consuming less at strip centers, malls, car dealerships, restaurants and so forth. Lower consumption makes it more difficult for these business owners to pay their rent or mortgage payments. This can lead to a vicious cycle in which retailers are forced to close and ultimately lenders may find it necessary to take over commercial properties.
The combination of lower consumer spending, a reduction in both residential and commercial real estate values produces reduced confidence in the markets and can become a self fulfilling prophecy of a vicious cycle.
Where do we find virtue in this cycle? Or, better yet, how does a virtuous cycle begin? Fortunately, the Federal Reserve has responded by lowering the cost of funds. Their actions has made it easier for those seeking credit to find it at a lower cost. TARP has injected more capital into banks making it easier for banks to leverage this capital by making additional loans. Given the historic problems in the market, lenders will have to underwrite loans perhaps even more carefully than in the past. Nevertheless, credit should be available to those with a good business plan and credentials. Further, we are blessed by a culture of change and adaptability in this country.
Where does virtue come in? This is where we really need the collective ingenuity, wisdom and entrepreneurial risk taking of Americans to kick in! We face an important turning point as we depart the the former Industrial and Informational Ages for what some have referred to as the Conceptual Age. In the future, our country will need to depend more on our intellect, our innovation, design and creative skills. Companies will not be able to justify paying Americans $5,000 month for jobs that can be outsourced to other countries for $500 per month. Since the developing countries are catching up, it is now possible for companies to outsource even more sophisticated customer service, accounting and tax jobs to India and other countries at a fraction of the cost of U.S. wages. In a free market economy, these jobs will be outsourced at an ever-expanding rate over the next decade.
For the U.S. to return to a vibrant, growth oriented economy, we must focus on more than what are identified as the left-brain directed jobs, those that are logical, linear, and task specific. Right-brain directed functions such as those that are more creative, insightful, innovative, design based are needed to stimulate the economy and jump start us into a virtuous cycle.
For this to happen, we must place more value on right brain directed functions as well as those who are more naturally right brain directed in the workplace. The big three automakers stopped innovating decades ago and were slow to make the needed changes to keep their companies vibrant. They ended up in a vicious cycle as opposed to virtuous one. Most of the airlines have been trapped in the conventional manner of delivering their product and a vicious cycle has been the result.
Oftentimes, companies and even industries go through stagnant phases without the innovation necessary to maintain vibrancy and a solid growth rate. A vicious cycle can be the result. Unfortunately, our society and school systems place value on the traditional disciplines of science and math. The conceptual fields of design, art, creative thinking are discouraged. We need to encourage those who are particularly talented in these fields to help revitalize our industries so that we are more competitive in the global markets. Think the design breakthroughs that Apple computer and Google have pioneered to name two.
Researchers are learning a great deal more about the brain, often described as the most complicated and least understood organ. Jump starting us into a virtuous cycle will take a great deal of brain power. Specifically, we need to find ways to stimulate our right brains. Research has demonstrated that both Einstein and Da Vinci were both gifted with a particular ability to tap into their right brain potential. Medical research is making it possible to better understand how to use more than the traditional 10% of our brainpower. Our creativity and ingenuity have allowed our country to prosper thus far, we need to collectively tap into it now to return to a virtuous cycle!