The Dismal Science

A New Year begins. At this writing, economic reports indicate that the retail business is somewhat better than last year. That sounds to me like damning with faint praise! The past 12 months have been the most difficult that many of us can remember, particularly in the jewelry business.

The so-called luxury business has all but vanished. The main-stream business has changed dramatically as a result of gold hitting the heights of $1,200 per ounce. For the first time, at least in my memory, we see national chain stores like Kay Jewelers advertising emerging brands like LeVian and Pandora.

While usually an optimist, I think we are still a long way from getting out of the woods. There are so many structural problems confronting the nation, it is difficult to see the end game. And it appears to me that Washington is not focused on the important priorities.

It all began with the financial melt-down a year ago. A stampede began when we were told we had to do something immediate or dire consequences would result. The something was the so-called roughly $800 billion bailout of the financial community. We were told that the credit markets were frozen and that banks weren’t lending. We learned that a relatively small proportion of mortgages whose credit worthiness was questionable at the beginning were now part of a new financial product. That new financial product, which only a few really understood, bundled low-risk mortgages with high-risk mortgages.

This wasn’t a problem as long as home prices continued to rise and consumers continued to pay inflated prices for homes that many couldn’t afford. As home foreclosures began to mount, the prices of homes all over the country began to fall. The house of cards began to crumble. Worse was the fact that home buying, even if you had a job and decent credit, dried up.

The carnage of the financial situation spread to other industries. General Motors and Chrysler became wards of the federal government. Lehman Brothers failed. Bank of America rescued Merrill Lynch and later was pilloried for honoring valid contracts with Merrill employees. A year later we have retail sales marginally better than a year ago, an unemployment rate of 10 percent, and a dollar whose value continues to decline. As a result, inflation is looming in the near-term future.

Our representatives and leaders in Washington are focused on tertiary priorities. Until private industry sees a clear path to growth, the unemployment numbers will remain poor, as will retail sales and all the economic activity that flows from consumer spending—which accounts for two-thirds of the economy and drives this country. Economics is truly a dismal science, and it seems we never learn that there is a high price to pay for poor economic decisions. The voices of this industry need to communicate with Washington to get them focused on the real business of America.