Friday, February 22, 2008

Go on a savings spree


February 22, 2008
Op-Ed Contributor
Go on a Savings Spree

CONGRESS has passed and President Bush has signed legislation to rescue the economy from the jaws of recession. The $168 billion package, which includes an effort to increase consumer spending by distributing $600 rebates to individuals, can be faulted in many ways: with two wars and a budget deficit the nation can’t really afford it; it will probably arrive too late in the business cycle to actually make a difference; and the near-universal aspect of the rebates doesn’t make much sense. But the most fundamentally troubling thing is the premise that while consumer overspending got us into this mess, more will get us out of it. This is akin to the old saw about curing a hangover with the hair of the dog that bit you.

What if instead of giving rebates we helped create an investor society by seeding universal investment accounts? This would not only pump cash into the economy, through the slightly more indirect route of investment, it would also help us correct some of the near-fatal flaws in our long-term economic landscape.

The recent slowdown in gross domestic product growth is only a symptom of recession, not the cause. While there are many things to blame for the current crisis — most notably the subprime mortgage mess — one factor that has received little attention is America’s low savings rate. In 2005, net private savings in the United States were negative. In other words, we were spending money that we didn’t have, chipping away at our national wealth.

The last time the savings rate dipped into the red was during the Great Depression. At that time, of course, it made sense not to save. Joblessness was high and money scarce; we needed to dip into our kitty to survive. But our negative savings during the Bush boom had a different cause. Evidently, we felt so flush with (paper) gains in the stock and housing markets that we spent money as if there were no tomorrow.

Republicans have long argued that the way to stimulate long-term growth is by promoting investment over spending. Hence their perennial efforts to lower taxes on capital gains, dividends and corporate profits. But whether such policies actually stimulate increased investment is open to debate, since the wealthy folks who gain most from these tax reductions are probably already investing their money. And the tax savings don’t trickle down as much as their advocates claim.

Democrats, more concerned with helping working families, consider consumer spending to be the magic bullet, so they favor tax rebates. But this only encourages us to continue our profligate ways.

Why not combine the best of both philosophies and try to stimulate investment by all Americans? The simplest approach would be to seed universal mutual fund accounts for low-income Americans. The best way to do this would be through a so-called refundable tax credit deposited directly into a special investment account for each taxpayer. In future years, the government could contribute an additional 50 cents for every dollar the taxpayer deposited into this account. Think of it as a universal 401(k), but one that could be used not only for retirement but also for things like a down payment on a house, college expenses or unexpected health costs.

Such investment incentives would do more than just help stimulate business growth by providing new capital. They would fundamentally change taxpayers’ lives. Some research suggests that asset-holders behave more responsibly and are more civic-minded than those without wealth. After all, they have a stake in the future of the economy and their community. This is why banks in cities don’t readily offer mortgages for apartments in buildings in which most of the tenants are renters, not owners. My own research suggests that having savings and investment equity is one of the best predictors of whether someone’s children will attend and graduate from college. Investing motivates people of all income levels to defer gratification and become knowledgeable about the economy and society.

Finally, to the extent that investment accounts grow, they decouple economic security from job security. By providing a cushion during employment transitions, they are the best possible form of unemployment insurance.

For some reason, legislation to create universal investment accounts — proposed by senators and representatives from both parties over the past decade — has repeatedly stalled in Congress. But now the economy is in trouble, and there is general agreement that this is a time for action. President Bush has already authorized the plan to stimulate more of the spending that got us into this trouble. But it’s still not too late to make the effort to create a true investor society.

Dalton Conley, the chairman of New York University’s sociology department, is the author, most recently, of “The Pecking Order: A Bold New Look at How Family and Society Determine Who We Become.”

Visiting Santa Monica


February 22, 2008
American Journeys | Santa Monica, California
Classic Beach, but Much More in Santa Monica

WITH its classic amusement pier, glittering bay and surfers bobbing on swells, Santa Monica was a perfect setting for “Baywatch.” But take a short walk inland, and this city on the edge of Los Angeles reveals itself as more than a stereotypical beach town.

Within its borders, drawings by Picasso and Dubuffet hang in the same art complex as a vast installation by a graffiti crew. A well-preserved Mission-style bungalow sits around the corner from a steel performance space by Frank Gehry. Shops sell goods ranging from vintage Parisian wedding gowns to a whimsical map made entirely out of license plates. There are homegrown coffee bars on nearly every block, with names like Groundwork or the Legal Grind, dispensing caffeine and counsel at the same time.

“The pier, the bike path — they’re the only things most people know about Santa Monica,” said Colleen Dunn Bates, editor of “Hometown Santa Monica,” an insider’s guide to the city. “And they’re fun. But they don’t reflect everything that the city really offers.”

Although it’s surrounded on all sides by districts that are part of the City of Los Angeles — Pacific Palisades, Venice and West Los Angeles — Santa Monica asserts its own identity as an eight-square-mile separate city, and its population of about 96,000 is spread through several distinct neighborhoods. To make the most of time there, enjoy the games and famed carousel of the Santa Monica Pier and then step back from the beach to sample the city’s variety the way Santa Monicans themselves do.

On one recent Saturday, Ren Farrar was luring passers-by to his stand at the open-air Santa Monica Farmers’ Market, close to the beach on Arizona Avenue. By state law, all goods at the market must be grown in California, and much of the produce is picked within 24 hours of its appearance there.

“Care to try a sample?” Mr. Farrar, 37, of Spring Hill Jersey Cheese of Petaluma, shouted as I walked by. Watching intently as I savored a cube of his Old World Portuguese, he observed, “This is mild enough to go with anything, yet firm enough to stand up to the heat.”

Down the block, Adams’ Stuff’ N Olives featured feta and anchovy-stuffed olives. Fair Hills Farms offered six kinds of organic apples. Across the street, shoppers dropped dried nectarines, plums and pears into bags. A family strolled by, munching on Cajun spiced almonds and sipping ice-cold lemonade, both produced only a few miles away.

Nate Allen, 30, a personal chef and restaurant consultant from nearby Venice, shops at the market routinely, as do many of the top chefs in the area.

“The greatest thing about this market is that you’re going to get what is absolutely perfect and in season for this region,” said Mr. Allen, who flaunts his trade by sporting a seven-inch-long tattoo of a knife on one forearm and a tattooed fork on the other. “For visitors, by the time you get to the last vendor, you’ve got a great picnic for wherever you want to go.”

He often takes his own picnic to the Backbone Trail, a 69-mile system that roughly follows the crest of the Santa Monica Mountains from Will Rogers State Historic Park just north of Santa Monica to Point Mugu State Park in Ventura County. Hikers can take an easy, sage-scented, two-mile loop from the parking lot at Will Rogers up to Inspiration Point, a sensational overlook of Santa Monica Bay from the Palos Verdes Peninsula to Point Dume in Malibu.

On a clear day, a hiker can see Catalina Island and the white dots of sails. Behind are the slopes of the Santa Monica Mountains, and in the distance, the high-rises of downtown Los Angeles. Up there, the muted chattering of birds and the hum of insects are the only sounds.

Back in northern Santa Monica, natural sights give way to architectural ones. Adelaide Drive, at the north end of the city, offers intriguing examples of early-20th-century architecture. Two of the homes designated as city landmarks are the Craftsman-style Isaac Milbank House (No. 236) — designed by the same firm that did Grauman’s Chinese Theater in Hollywood — and the stucco Worrel House (No. 710), which was built in the mid-1920s and has been described as a “Pueblo-Revival Maya fantasy.”

(Another selection of carefully kept old houses, in styles from Victorian and Craftsman to Spanish colonial revival, await in the Third Street Historic District.)

Some of the city’s best shopping is also on its northern rim, where the 10-block Montana Avenue district is known for upscale clothes, home décor, crafts, jewelry and art. At Every Picture Tells A Story (No. 1311-C) a lithograph of the cover of “Charlotte’s Web” signed by the illustrator, Garth Williams, hangs on a wall, and in the gallery (the store is also a children’s bookstore) original works by Maurice Sendak, Dr. Seuss and others are $150 to $150,000.

Next door, Rooms & Gardens (No. 1311-A) sells furniture, antiques and accessories like pillows fashioned from an antique Indian sari. The actress Mary Steenburgen, one of the store’s three owners, praised the walkability of the area — not a common commodity in Southern California — when I asked her about the location of her store.

“The thing I love about Montana is that you feel as if you are in a pedestrian city,” she said. “It’s fun to look out the window and see people walking by with their dogs, instead of just cars streaming by.”

Santa Monica is sunny almost all the time, but visitors who hit a rare rainy day might spend a good portion of it at Bergamot Station, a complex of art galleries that many miss because it’s so hard to find. Built on the site of a former trolley-line stop — hence its name — the complex is on Santa Monica’s east side, next to a freeway on a dead-end street. Inside corrugated tin warehouses, two dozen galleries show contemporary drawings, paintings, photographs, sculpture and mixed-media works.

Sherrie Goldfarb of West Los Angeles and her friend Nancy Recasner of Studio City, Calif., hopped puddles between buildings after one rain this winter. “I wander through here with friends and the variety of work is amazing,” said Ms. Goldfarb, 57, a regular at the galleries.

Many boldface names are represented. At Ikon Ltd./Kay Richards, drawings by Dubuffet, Basquiat and Picasso, among others, are on display through March 1. “Rarely Seen,” a show of Henri Cartier-Bresson photographs, is running through May 10 at the Peter Fetterman Gallery.

Those who want to sense what Santa Monica was like as a sleepy town of tiny bungalows can visit Ocean Park on the city’s south end, which borders Venice. This funky neighborhood, one of the birthplaces of skateboarding in the late 1960s (part of “Lords of Dogtown” was filmed there), got a makeover in the 1990s; the tiny bungalows now sell for millions.

Artsy Main Street, Ocean Park’s central artery of merchants, restaurants and galleries, manages to merge sneaker stores and used-book shops with Armani Exchange and Patagonia stores. At Varga (No. 2806) apparel and accessories seem jointly inspired by ’40s pin-ups, Barbie dolls and young Hollywood celeb-style. The inventory at Relish, off Main Street at 208 Pier Avenue, ranges from bath salts ($20 to $40) to a pinball baseball game ($110). The Frank Gehry-designed steel boxes of Edgemar (No. 2415-2449 Main Street) house retail tenants and a performance space around an open courtyard.

Appraise your purchases over a martini with a mermaid toothpick at the Galley (No. 2442), a steakhouse with signature décor (think tiki bar with Christmas lights), a soulful juke box and old-salt appeal. No wonder — it opened its thick plank doors in 1934, making it Santa Monica’s oldest restaurant.

As the day wanes, consider watching the jet set (the one with its own jets) fly into the sunset. Opt for dinner next to the runway at the Santa Monica Municipal Airport. Those in the know reserve a window table at the Pan-Asian fusion restaurant Typhoon or the more intimate sushi restaurant the Hump (pilot slang for the Himalayas) upstairs.

But at sunset, the most thrilling view in town is back at the beach, from the top of the solar-powered 130-foot-high Pacific Wheel, the Ferris wheel at the Santa Monica Pier. Yes, it’s touristy, and yes, it might be crowded, but it is, after all, the city’s iconic symbol.

As my seat on the wheel glided upward one evening, the entire city of Santa Monica, and far beyond, slid into view. Below, the cast and crew of the film “17 Again,” starring Matthew Perry and Zac Efron, were shooting on the beach, as they would be all night long. The whole scene was bathed in a deep pink and violet glow.

It felt just fine to act like a tourist for a while.


SANTA MONICA, adjacent to Los Angeles, has 3.5 miles of coastline, all publicly accessible; two miles of this waterfront make up Santa Monica State Beach. The city’s north-south numbered streets run from Second Street, a block from the water, eastward to 26th. The major east-west arteries are San Vicente, Wilshire, Santa Monica, Pico and Ocean Park Boulevards.

The Santa Monica Pier, with rides, games, souvenir shops and a 1922 carousel, is at the foot of Colorado Avenue. The Pacific Wheel, a Ferris wheel at the pier, will be closed May 5 to 22 as a new wheel is installed.

Beach lovers can step onto the sand from Loews Santa Monica Beach Hotel at 1700 Ocean Avenue (310-458-6700;; rooms from $349). The 72-room Ambrose (1255 20th Street; 310-315-1555;; from $229) feels more like a Mission-style hideaway with stained-glass windows and fireside library.

The Santa Monica Farmers’ Market is held on Arizona Avenue from Second to Fourth Streets, on Wednesdays from 8:30 a.m. to 1:30 p.m. and Saturdays from 8:30 a.m. to 1 p.m.

The Backbone Trail is in Will Rogers State Historic Park (1501 Will Rogers State Park Road, off West Sunset Boulevard, Pacific Palisades; 310-454-8212;, which is open from 8 a.m. to sunset daily. Parking is $7. Picnic tables are available at Inspiration Point.

Most galleries at Bergamot Station (2525 Michigan Avenue; are open from 10 a.m. to 6 p.m. Tuesday to Friday, and 11 a.m. to 5:30 p.m. on Saturday. Because Michigan Avenue is bisected by a freeway, the best access to this dead-end section of it is off Cloverfield Avenue.

At the Galley (2442 Main Street; 310-452-1934, a 12-ounce sirloin is $23 and seafood diablo is $24.

Typhoon, at the Santa Monica Airport (3221 Donald Douglas Loop South off Airport Road; 310-390-6565; offers Pan-Asian fare including Thai river prawns ($21) and stir-fried crickets ($10). Upstairs, the Hump (310-313-0977; serves some of the freshest sushi in town.

Wednesday, February 06, 2008

Americans cutting back on consumer spending


February 5, 2008
Economy Fitful, Americans Start to Pay as They Go

For more than half a century, Americans have proved staggeringly resourceful at finding new ways to spend money.

In the 1950s and ’60s, as credit cards grew in popularity, many began dining out when the mood struck or buying new television sets on the installment plan rather than waiting for payday. By the 1980s, millions of Americans were entrusting their savings to the booming stock market, using the winnings to spend in excess of their income. Millions more exuberantly borrowed against the value of their homes.

But now the freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as a period of involuntary thrift unfolds in many households. With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means.

“We don’t use our credit cards anymore,” said Lisa Merhaut, a professional at a telecommunications company who lives in Leesburg, Va., and whose family last year ran up credit card debt it could not handle.

Today, Ms. Merhaut, 44, manages her money the way her father did. Despite a household income reaching six figures, she uses cash for every purchase. “What we have is what we have,” Ms. Merhaut said. “We have to rely on the money that we’re bringing in.”

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

While some experts question whether most Americans, particularly baby boomers, will ever give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.

“The long collapse in the United States savings rate is over,” said Ethan S. Harris, chief United States economist for Lehman Brothers. “People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.”

In 1984, Americans were still saving more than one-tenth of their income, according to the government. A decade later, the rate was down by half. Now, the savings rate is slightly negative, suggesting that on average Americans spend more than their disposable income.

Though the savings rate does not account for the increased value of stock and property, or the gains on retirement accounts, many economists still view it as the most useful gauge of the degree to which Americans are making provisions for the future.

For the 34 million households who took money out of their homes over the last four years by refinancing or borrowing against their equity — roughly one-third of the nation — the savings rate was running at a negative 13 percent in the middle of 2006, according to Moody’s That means they were borrowing heavily against their assets to finance their day-to-day lives.

By late last year, the savings rate for this group had improved, but just to negative 7 percent and mostly because tightened standards made loans harder to get.

“For them, that game is over,” said Mark Zandi, chief economist at “They have been spending well beyond their incomes, and now they are seeing the limits of credit.”

Many times before, of course, Americans have found innovative ways to finance spending, even when austerity seemed unavoidable. It could happen again.

The Me Decade was declared dead in the recession of the early 1980s, only to yield to the Age of Greed and later the Internet boom of the 1990s. Over the longer term, the economy should keep growing at a pace that reflects improving productivity and population gains.

But for the first time in decades, credit is especially tight as the bursting of the housing bubble has spread misery across the financial system. In homes now saturated with debt, conspicuous consumption and creative financing have come to seem a sign of excess not unlike that of a suntan in an age of skin cancer.

The return to reality is on vivid display at shopping centers, where consumers used to trading up to higher-price stores are now heading to discounters. Wal-Mart and T. J. Maxx are thriving, but business has slowed at Coach, Tiffany and Williams-Sonoma.

Not long ago, Elena Gamble would have looked at the Cadillac parked across the street from her modest home in Elk City, Okla., and felt a twinge of jealousy.

“We live in a small town, and everybody looks at your clothes and what you drive and where you have your hair done,” said Ms. Gamble, who earns about $2,600 a month as a grievance counselor at a local prison.

Now, she and her husband — a prison guard who brings home $2,000 a month — are grappling with $10,000 in high-interest debt. They no longer go to the movies or out to eat, except occasionally to McDonald’s. They quit their Internet service. Their car was repossessed. “What we say now is, ‘If we can’t afford it, we can’t buy it,’ ” Ms. Gamble said.

And when she looks across the street at that Cadillac, her envy has been replaced by pity for the neighbor on the hook.

“I say, ‘Oh my, you’re living here, and driving that? There’s got to be something wrong,’ ” Ms. Gamble said. “ ‘You’re in debt, and you’re in trouble.’ ”

For decades, that envy has been a prime engine of economic growth. Debt-willing consumers hungering for the latest-generation this and the fastest that kept factories busy from Michigan to Malaysia.

From 1980 to 2007, consumer spending swelled from 63 percent of the economy to over 70 percent, according to, while the share of after-tax income absorbed by household debt increased from 11 percent to more than 14 percent.

During the technology boom of the 1990s, an extravagant mind-set took hold. In ads for the discount broker Ameritrade, a spiky-haired hipster ridiculed middle-aged professionals for settling for conventional returns.

Even after the “stock market as money machine” line of thinking proved bogus, extra spending continued. The Federal Reserve cut interest rates to near record lows, banks marketed mortgages with exotically lenient terms and another fable of wealth creation took hold: the notion that housing prices could go up forever.

The come-ons for stocks were replaced by a new crop of advertisements. A house was no longer a mere place to live; it was a checkbook that never required a deposit. Between 2004 and 2006, Americans pulled more than $800 billion a year from their homes via sales, cash-out mortgages and home equity loans.

“People have come to view credit as savings,” said Michelle Jones, a vice president at the Consumer Credit Counseling Service of Greater Atlanta.

Some Americans have so much wealth that they can spend enough to fuel much of the economy. The top fifth of American earners generates half of all consumer spending, noted Dean Maki, chief United States economist at Barclays Capital.

For the others, some say credit is an intrinsic part of modern life, and Americans will soon be back for more. “A river of red ink runs through the history of the American pocketbook,” said Lendol Calder, author of “Financing the American Dream: A Cultural History of Consumer Credit.”

“Partly because of desire, partly because of optimism, partly because lenders have been free to invent useful borrowing tools that minimized shame and bother,” he added, “I think it will take a great catastrophe, greater than the Great Depression, to wean Americans from their reliance on consumer credit.”

Credit counselors are now swamped by calls not just from people of modest means, but from professionals earning six-figure incomes, their access to finance warping their distinction between necessity and desire.

“The longer someone has lived on a high income, the harder it is for someone to cut back,” said Manuel Navarro of Money Management International in San Diego. “I ask them, ‘Do you really need to have a 60-inch flat-screen TV hanging on your wall?’ ”

Fran Barbaro has an M.B.A. and a résumé of computer industry jobs with salaries reaching $150,000 a year. She used to have a stock portfolio worth about $1 million. She hung original art on the walls of her three-bedroom house in Boston.

But divorce, illness and motherhood drained her savings. Her home is worth less than she owes, and she owes another $200,000 to credit card companies, banks and tax collectors.

Ms. Barbaro, 50, said she knew she was living beyond her means. But her house demanded work. Her two boys needed after-school programs running $25,000 a year. Medical bills multiplied.

“These were simple day-to-day expenses,” she said. “The money was always there.”

Until it wasn’t. Her take-home pay is $5,200 a month, but her debt payments reach $4,400.

Ms. Barbaro has rented out her house while negotiating to lower her mortgage. She has moved to an apartment, where her sons sleep in the lone bedroom while she sleeps on a pull-out sofa.

“It’s the worst,” Ms. Barbaro said. “How do you salvage what you have and hopefully go back?”