Prognostication

We have all heard that old saw, “everyone talks about the weather, but nobody does anything about it.” There should be a similar saying about our economy, except that "everyone" has something to do with changing that, or at least dealing with it.

Depending upon who you talk or listen to, we are entering a time of transition in our economy. Some opine that the “bubble” has burst, referring to the end of the economic expansion which our nation has enjoyed for the past decade. Others call it entering a bear market.

In any case, from all indications, it appears that the economy is beginning a new cycle and that cycle is about to turn down. I am quite aware that this magazine, and other trade publications, like to have upbeat articles with an eye toward prosperity and expansion of business. Reality is a bit less “Pollyanna-ish” if I might use that term. Those of us who have lived through these cycles—especially those of us who have been and are now in business—we’ve become are sensitive to and, with a little intuition can detect, the signs of the coming change.

As a businessman, you need to be aware of what changes may occur, and to take whatever preemptive steps you can to mitigate the effects. There are a lot of businesses, small and large, in our industry which will not survive an economic downturn. Especially after dealing with the changes wrought by the COVID experience. Inflation, fiat currency and a bear market will sound the death knell of many.

History Lesson

Perhaps a bit of perspective is in order…

The crash of 2008 was a serious issue, to be sure. However, it did not rise to the level of the crisis this country faced in the 1970s. While destructive, that downturn was short lived, and many markets adapted quickly. Real estate corrected itself from the heady days of $0.00 down and 1% adjustable rate mortgages to a more sedate and responsible baseline. The market rebounded from losses quickly and continued to expand.

However, in the early 1970s, a perfect storm of economic malfeasance and political ineptitude not only crashed the economy but put the country on a footing, in this writers’ opinion, only a half-step away from a full blown depression. The situation then is not so much different than it is now.

Oh, sure, the parameters are different, the pieces of the puzzle are similar, but people are people. In our politically volatile climate another downturn like the one we experienced 50 years ago could get really ugly, really fast. If you are in business today, you must be proactive and protect that business from what is most likely coming.

In 1973 the Arab/Israeli war set in motion an oil embargo by OPEC, wherein no oil was sold to the U.S. Because we had given up energy self-sufficiency in an attempt to court global interests, we were sitting ducks when the spigot got turned off. No one could get much gas, or any. Even the U.S. military struggled. The country saw long gas lines (sometimes taking hours in line to get a tankful), alternating days to buy gas, the cost of fuel doubling practically overnight. It was ugly and got uglier the longer it went on. The destructive effects of this bit of political spite crippled our businesses, our people and our nation. Add to that the shift off the gold standard for our currency and the country was in real trouble.

The national psyche took a pounding. Some called it a “crisis of confidence” and the leaders in Washington had absolutely no idea how to fix it. From the perspective of one who lived through it, let me say you can’t eat confidence! High unemployment and high interest rates (approaching 20% for mortgages!) as well as stagflation (persistent high inflation combined with high unemployment and stagnant demand in a country's economy) took hold and the country went into a tail spin that lasted until the early 1980s. It was not a fun time to be in business, or to just try to make a living. It created a climate of despair and changed the complexion of the nation.

There are those pundits today who would tell you that a scenario such as the one described above can’t, or won’t, happen again. They point to all sorts of economic indicators, government safety nets, etc., this, that and another thing, to bolster their predictions. The proverbial “they” have been wrong before, and I’d bet the farm that they will be proven wrong again.

There are a lot of things in business and life that are outside of our control. The economy and the national will are two such. Since our government has seen fit to produce fiat currency (inconvertible paper money made legal tender by a government decree) the basis for any economic stability has been sorely weakened.

Edmund Burke, George Santayana and Winston Churchill have all famously said, “Those who do not know history are doomed to repeat it,” or a variation of that sentiment. I know that history may not be your strong suit, but if you want to know what fiat money is like, look up the Weimar Republic after World War I.

What am I trying to say? If you are in business today, whether you are a “big guy” or a one-man show, you should step back and take a look at the big picture. You do not need to be an economist, or particularly well read on the subject either.

“The times they are a-changin,” the song goes. The signs are apparent. Lumber prices have gone up 154% since January. If that bit of information doesn’t get your attention, take a look at your grocery bills! Taking notice of these warning signs may give you the opportunity to make changes in your business plan now to help you get through when whatever is coming gets here. Doing things like ordering material that you use a lot of now, in bulk, could save you big when the price doubles...or triples, or...? As well, taking stock of your employee situation can be helpful. Trimming your overhead now, while you are not in “hair on fire” mode is a must.

There are some bright spots which may, or may not, help to soften the blow of an economic downturn. The pent up demand for construction due to COVID is one. The fact that projects which had gone dormant are now being funded and started is a good omen. As mentioned above, though, no one can say with any certainty how things will progress, so it is best to be cognizant of changes which affect your business and act rather than react to them.

The Brooklyn, N.Y.-born author is a retired third generation master plumber. He founded Sunflower Plumbing & Heating in Shirley, N.Y., in 1975 and A Professional Commercial Plumbing Inc. in Phoenix in 1980. He holds residential, commercial, industrial and solar plumbing licenses and is certified in welding, clean rooms, polypropylene gas fusion and medical gas piping. He can be reached at [email protected].