Paying the Bills in a Recession
By: Lyle E. Schaller
What created that national economic recession that economists now contend began back in December 2007? Why has it become increasingly common for religious congregations and other charitable organizations to be forced to reduce projected expenditures because receipts are substantially less than was anticipated? Why has the percentage of the non-capital expenditures of denominationally affiliated Protestant congregations that are sent to the denominational treasurer plunged from about 12 to 15 percent in the 1950s to 5 or 6 percent in recent years?
A comprehensive response to those three questions would require a 500-page report. One chapter could be devoted to the "housing bubble." The most difficult chapter to write probably would seek to explain the growth of "bad paper" in which the collateral consists of mortgages and notes that cannot be assigned a realistic market value.
The focal point of this essay, however, can be summarized under one word—death. Most of the millions of adult Americans who placed a high value on "saving for a rainy day" are dead. For several decades, American-born adults in the 1860-1940 era were taught to save their money. Two highly visible examples were the two national campaigns to sell United States Savings Bonds to help finance the costs of two World Wars.
Who Taught Them?
The Influence of Institutions
One related consequence is the proportion of adult females in the United States who had completed at least four years of college rose from 3.8 percent in 1940 to 20.2 percent in 1995. For adult males that increase was from 5.5 percent in 1940 to 26.0 percent in 1995.
Another has been what for most of its history was called the United States Post Office. The primary purpose was to collect, transport, and deliver the mail. In small-town America, the local post office also often was a place to greet old friends and to catch up on the latest local news.
Two years later, in 1913, a total of 12,820 Postal Savings Offices were in operation. In the years following World War II, an average of slightly over 4 million depositors had combined deposits of more than $2 billion (the equivalent of $18 billion in 2008) in their Postal Savings accounts. Thus, the United States, through the role of Savings Bonds and the Postal Savings System, was offering Americans two safe, convenient, and simple ways to save money.
What Happened Next?
Second, the incentive to save was replaced by an incentive to borrow and spend. Instead of the Postal Saving System encouraging Americans to save, the Postal Service was delivering millions of letters every month encouraging the recipients to apply for a credit card.
The number of credit cards in circulation jumped from 126 million in 1981 to 290 million in 1990 and to an estimated 1.4 billion in 2008! The outstanding balances due on credit card debt rose from $2.7 million in 1970 to $80 billion in 1981 to an estimated $900 billion at the end of 2008!
For six decades, the United States Post Office Department encouraged Americans to save. For the past four decades, the mail and the media have sent messages encouraging Americans to borrow and spend.
The Housing Bubble
If the timeframe is expanded to four decades from 1968 to 2008, the Consumer Price Index (1982-84=100) rose approximately six-fold from 34.8 to about 215. To compensate for that, the market value of the typical single-family home needed to increase from approximately $25,000 to $150,000 over four decades. The attractiveness of being a homeowner was increased by the Taxpayer Act of 1997. The capital gains in investments in stocks and bonds were taxed, but that legislation exempted the first $500,000 of capital gains on a house that a couple had lived in for at least two of the five previous years. One consequence was the sales of existing single-family homes doubled from under 3 million in 1992 to over 6 million in 2005. Add in the purchases by people who realistically could not afford the mortgage payments, and one consequence was the "housing bubble" that began to burst in 2006.
The Gold Standard
For many years, the United States Treasury Department agreed to accept Treasury-issued gold certificates in exchange for gold at a rate of $20.67 per ounce of gold. In January 1934, the price was raised to $35 per ounce of gold. In July 1944, the international "Bretton Woods Agreement" was signed. It was agreed to replace the British pound with the American dollar as the standard for global currency. The dollar was valued at $35 for an ounce of gold. America was enjoying a huge surplus in international trade, and that reinforced the viability of that system.
One price tag of the war in Vietnam was a trade deficit for the United States, so on August 15, 1971, President Richard M. Nixon changed the rules and suspended the promise to value the dollar at $35 per ounce of gold. Two years later, the price of gold had increased to $42.22 per ounce. During the James E. Charter Administration in 1979, the price of gold climbed from $225 to $525 per ounce. In recent years, it has fluctuated between $700 and $1,000 per ounce.
One consequence is when consumer debt exceeds consumer savings it becomes difficult to borrow money. A second has been the bursting of the "housing bubble." For many, the "equity" in their home has been transformed from an asset into liability. A third has been for all Americans born after about 1935 an unprecedented stratification of the population by income. The old Sunday School movement divided people by age, gender, grade, marital status, and role—teacher or student. The teacher might have more accumulated wealth and/or be higher on the income ladder than the adults in that class, but they all spent Sunday morning together in the same church.
One of the most important consequences for congregational and denominational leaders has been the division of Americans with discretionary income into three categories. Some of the savers decided to invest their savings in capital assets that were expected to increase in value. The purchase of a home was one example. A second was to buy three or four units in a new apartment building and live in one of them. The hope was that the appreciation in the value of the rented units eventually would match or exceed the cost of the original purchase. The most popular, of course, was to invest in the stock market.
The second category of savers chose to place a high value on protecting the value of their capital. They purchased Treasury bonds or insured certificates of deposit or similar "safe" investments.
The third group defined "how much can we afford to lose" and split their investments between "safe" and "high-risk" assets.
The emergence of a global economic system produced a sharp decline in the number of American adults employed in agriculture, manufacturing, and mining. That trend was paralleled by a sharp increase in the number employed in the professions of law, education, medicine, and finance. It also was paralleled by a sharp increase in the number of Americans employed in the services sector, such as healthcare, retail trade, transportation, and as unskilled laborers.
One predictable consequence has been the numerical decline in the number of members in those denominations organized to serve those closest to the top of the income ladder. A second predictable consequence has been the emergence of thousands of new congregations across America organized around the "Three Self" missionary principle of self-governing, self-financing, and self-propagating. Most of them have been created to reach and serve people who are in the lower half of that income ladder and/or are recent migrants, but more than a few are nondenominational megachurches. Their constituencies tend to include a large proportion of people who are future-oriented and upwardly mobile adults who are savers and in the upper third of the population in terms of accumulated wealth.
A third consequence has been that most Protestant denominational systems tend to rely on the dollars sent to headquarters by affiliated congregations to fund their budgets. While that system began to become obsolete in the 1980s, many religious institutions find it easier to seek to perpetuate the systems that worked with the adults born in the 1860 to 1930 era rather than adapt to a new social and economic environment.
By contrast, a growing variety of parachurch organizations designed to resource congregations pay their bills from: (1) fees for services and resources, (2) donor-designated contributions from individuals who are savers, (3) grants from that rapidly growing number of family foundations, and (4) choosing only savers to serve as volunteer members of the governing board and each one is expected to be able to contribute at least $10,000 a year to help fund the budget.
Next month's essay will suggest options for constructive responses to the current economic recession in America.
Lyle E. Schaller is a retired parish pastor and parish consultant.
Copyright 2009 by Lyle E. Schaller