Friday, July 21, 2006

The "Poverty" Effect

With over a decade of exceptional economic conditions in many parts of America, it’s almost hard to recall the less lofty circumstances that were considered normal during the era that preceded it.

Incomparable optimism fueled by booming technological change coupled with a protracted period of historically low interest rates and inflation served to cultivate an economic environment best characterized by the luxuries (and possibly some excesses) experienced by its participants.

A little over a decade ago the nation’s collective consciences would have yet to realize (or at least fully realize with such scale) such nineties era wonders as Starbucks, Home Depot, the IPO, stock options, the startup environment, cell phones, the Internet, the SUV and the Hummer, rampant gut rehabs and luxury renovations, the “loft” and condo craze, real estate “flipping”, and widespread gentrification of our neighborhoods and cities.

Clearly, the “Wealth Effect” fostered by the “roaring” nineties followed closely by its possibly larger and more evil twin the “real estate boom” of the new millennium have left a lasting mark, or maybe more precisely, erased a certain experience of the more common existence of the recent past.

But now, real, possibly dramatic change seems afoot, for with the bust of the stock market and looming bust of real estate, so may go the consumer boom.

It is possible that we are now entering a new era of lower expectations; where a pronounced “Poverty Effect” will drive the comforts we have recently come to know and love further and further out of reach while the obligations we have amassed become more prominent and burdensome.

For those of us who can manage the burdens no longer, a more painful lesson will be learned. But since, as they say, no individual is an island, these lessons will be felt widely, affecting the community in a larger sense.

Last year the Federal Reserve Bank of Chicago produced an interesting study that sought to investigate a possible correlation between increases in the rate of foreclosures and increases in crime.

Startlingly, this study concluded that there was, in fact, a strong correlation resulting in a 2.33% increase of violent crime for every 1% increase to the foreclosure rate.

As has been widely reported, foreclosures are up dramatically in many areas of the country. A lesser known issue though, is that violent crime, long kept in check, is now on the rise. Many of the county’s cities, primarily the smaller ones, are beginning to register unexplained spikes in violent crime rates reminiscent of the seventies, eighties and early nineties.

Are these spikes in violent crime an anomaly? Or are they a harbinger of times to come?

Only time will tell, but it wouldn’t be surprising if we should all find ourselves becoming reacquainted with some of the conditions considered commonplace not so long ago.