Too Many Job-Seekers

According to this report, in the USA, there over five job-seekers for every job opening. This ratio is likely to expand in the coming months. Most job-seekers are deluding themselves if they think they will be getting hired at all.

If these people want to be gainfully employed, they are going to have to employ themselves - either going into business by themselves or joining with others to form businesses. This is going to be a difficult transition for those who choose to undertake it.

Starting a business can be enormously demanding and prone to failure. Those who have been used to working under supervision need to learn self-management skills. They also need to take care of any number of tasks ancillary to producing their main product, such as marketing and bookkeeping. The self-employed often work long hours for little compensation and no fringe benefits.

We believe the forced entry of tens of millions of American workers into self-employment will ultimately lead most of them to earning sub-minimum wage levels. The loss of purchasing power will further depress consumption and the economy as a whole.

What the Average American Knows that We Don't

Consumer confidence as measured by the University of Michigan rose for the fourth month in a row in May. Historically, a marked rise in this measure signals the end of economic contraction. Perhaps happy days are here again indeed and the Frugal Scotsman and his loyal assistant - yours truly - will have to find other ways to occupy our time instead of reporting on a Depression that never quite materialised.

Perhaps Mr. and Mrs. Average, seeing the big banks pass their 'stress tests' with flying colours, know that the worst of the credit crisis is in the past. Never mind that bankruptcies in May are up 37 percent from last year, or foreclosures up 18 percent.

Perhaps our high school-educated economists sense immanent job recovery in spite of the chain of record continuing unemployment claims.

We really do wonder where they are getting their information. As far as we can tell, the economic scene is pretty horrid with little hope of anything better than further crashing ahead. But somehow the masses are optimistic. Why? How?

As best as we can reckon it, the recovery story runs something like this: Sure, the economy is contracting - but not as fast as it was at the end of 2008. So, since the contraction is decelerating, pretty soon the contraction will stop and turn into growth.

Perhaps this story will come true. Time will tell, of course. The key thing to watch for is if contraction rates continue moderating, or if the compounding of bankruptcy, delinquency, foreclosure, unemployment, and so forth will re-accelerate the collapse in production.

If the masses are right (and we certainly wouldn't mind if the are - we could use some prosperity ourselves!), then all will be well. If they are misjudging the situation, then the letdown, disillusionment, anger and psychological depression will be extreme. To us though, the recovery story looks like the Bargaining Stage of the grieving process.

Peasant Virtues

As our income has fallen, we have been trying to rediscover the skills our ancestors used to manage their financial affairs. We break the skills into three sets: Industry, Frugality, and Thrift.

Industry is not here referring to factories and mines, but the idea of doing things for one's self. Hungry? Don't run to McBurger Kong, but make a meal for yourself. Cost of fresh food got you down? Grow some. The basic principle here is what economists call import substitution. Instead of importing goods and services into your household and exporting money, you substitute the fruits of your own labour (sometimes literally) for what you would buy from others.

Industry is also about figuring out what you can do to make extra money, on the side - if you still have a job, or as self-employment. Lots of things always need doing. If you can't figure out what to do to make money, keep busy around the home - chances are there are many worthwhile projects. Also, you may teach yourself some marketable skills.

Frugality is all about enjoying what you have as long as possible before you replace it. And when you do replace it, do that as inexpensively as possible. Let's suppose you have an article of clothing, say a sweat-shirt, and it's getting a little ratty on the collar and cuffs. Does it still keep you warm? Then keep it! You might say, "But it's shabby." Listen: a new one costs money (even if you make it yourself), and this one is free. Any money you spend is infinitely more money than not spending money. A new thing is not infinitely better than an old, shabby but serviceable thing. When you spend money to replace something which still works, you are being irrational. It's OK to be irrational now and then, but don't try to pretend that you are being rational by coming up with reasons that the new thing is better.

When it comes time to replace something, go first to rummage sales and thrift stores. Often you can find very good quality things at minuscule prices. Frugality is also about finding which stores get you the best prices, finding the best deals, conserving energy, and repairing things as cost effectively as possible.

Thrift has two components. The first is to look at money coming in as something to be saved, not spent. This is, for inhabitants of the developed world, counter-cultural. One hears countless messages to spend from family, friends, coworkers, employers, salespeople, and marketing. If your financial situation is not so good, the more you save the faster it will improve.

The second component of thrift, which answers the question of where the best place for most people to put their savings, is: Never, ever borrow money. People have gotten very lax on this in recent decades, and the results have been catastrophic. If you are fortunate enough not to have burned by your debts so far in the Depression, don't take any more chances. When all your debts are paid, you may then delve into the joys of learning to invest your savings. On this last point we must insist that you learn to manage your own affairs, and not leave the decisions to 'experts'. The experts have done very badly lately.