Monday, February 20, 2012

The Scarcity vs Abundance Mentality

Dr. Stephen Covey coined the terms Scarcity Mentality and Abundance Mentality in his highly acclaimed work – The Seven Habits of Highly Effective People. He says “People with a scarcity mentality tend to see everything in terms of win-lose. There is only so much; and if someone else has it, that means there will be less for me. The more principle-centered we become, the more we develop an abundance mentality, the more we are genuinely happy for the successes, well-being, achievements, recognition, and good fortune of other people. We believe their success adds to...rather than detracts from...our lives.”

It is my opinion that many in our world see the world through a paradigm of scarcity. And those that have lost their jobs or homes (or worse), their view on the world is probably justified. But I would also argue that the resources we have been graciously blessed with have not diminished substantially. We just perceive that resources are becoming scarcer because of the difficult macroeconomic times we live in.

This week, Tom Cunningham, Vice President, Senior Economist, and Regional Executive for the Federal Reserve Bank of Atlanta, spoke at the Dalton Rotary Club. He provided an easy to understand overview of what has happened and what continues to affect us economically. Although his overview of the economic conditions facing our nation were not positive, his explanation was easy to understand and made sense as to why we are not seeing improvements.

Mr. Cunningham described the conditions that caused the financial collapse / crisis, the housing collapse, and the profound unemployment that continues today. He explained the actions of the Federal Reserve Bank that have been implemented to counter the negative economic influences facing the United States. His explanation of the monetary policy tools and the actions taken by the Fed seemed reasonable.
Basically the Fed has used its investment portfolio to stabilize pricing and output as much as possible. And the steps taken have had the desired effects on our US economy. That is the good news. Pricing for goods and services in the US have remained fairly constant throughout the great recession (excluding housing).
The remaining elephant sitting on the chest of the American economy is our pervasive and extremely high unemployment. Mr. Cunningham explained the natural interaction between consumption in the US economy and job growth. Given that over 70% of the US economy is driven by our purchase and consumption of stuff, as we buy / consume more, the companies that produce things expand and hire workers. And as more people are employed, their incomes drastically improve driving even more consumption.
Our current economic situation is not reacting the way a normal recovery might react. Because of how deep the recent recession was and because it lasted a long time, those with jobs still are not consuming like would be normally seen in a recovery. The average US saving rate pre-recession was less than 1%. Today Americans are saving between 7-8% of their income.
Businesses have also invested dramatically in new technology and equipment during the downturn. These investments have led to significant increases in US productivity. An increase in productivity is also an increase in our standard of living. But it also means a company can do more with less people.
Mr. Cunningham also mentioned two other issues that are negatively influencing our economy – the size of our national debt and the uncertainty that US businesses have in regard to tax policies and regulation. The US has to lay out a plan for managing its debt. But Congress and the President must do so without cutting spending so deeply and quickly that the economy takes additional hits. That is a tough balancing act and may signal why no plans have been approved or implemented. Gridlock may be beneficial in these times.

The uncertainty surrounding tax policy and regulations must also be worked out. The future tax rates that are eventually enacted are probably impacting the economy more negatively than the uncertainty that persists today. Most businesses are accustomed to paying taxes and expect to pay their fair share. Congress would be better off developing a tax reform package and implementing it now than ignoring it for another year while our economy drags along.
And finally, a regulation moratorium needs to be enacted until we recover fully from the economic doldrums that are affecting us. No new regulations should be enacted without a full jobs impact study completed. And when we are back on track with more people working, we can revisit those few areas where regulations are needed or existing regulations modified.

Dr. Covey’s Scarcity Mentality was introduced primarily in discussing the interaction between individuals and their relationships with others. Given the conversation around our current economic environment, I would broaden his concept. It is my opinion that the great recession has been so deep and pervasive, we as Americans have developed a crippling Scarcity Mentality. This mentality has created in many an anti-anything outlook. Some are or have been so negatively affected by the last 3-4 years, they have retreated into a glass half empty society.
The America we have always been – optimistic, proud, fearless, confident – is in jeopardy. The policies over the last many years that picked winners and losers, rewarded risky behavior (as long as you did not get caught), incentivized people to get it today without paying for it, have all played into the current national psyche.
Hopefully, some have learned from our past mistakes, and are willing to work diligently in correcting these failed policies. And if we will elect leaders who seek win-win solutions and not win-lose propositions, we can become a nation built on an Abundance Mentality once again.

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