Money In America, Part II

Host: Richard D. Heffner
Guest: Marshall Loeb
Title: “Money In America”
AIR: 3/6/82 Part II

I’m Richard Heffner, your host on THE OPEN MIND. When today’s guest joined me last week, I introduced our program by reporting that I’d perform somewhat the same host/moderator chores on another television series called From the Editor’s Desk. And it fascinates me that as we search the headlines each week for clues to newsmakers whose verbal exchange with our distinguished editorial board will illumine the major issues of our times, again and again I find that we’re dealing with money. And it’s not just that death and taxes alone are certain in this veil of tears, but that so many of us now are confronted by the sheer subjective necessity of thinking about money and of making sense along with our dollars. Now, I happen to be one of those awful economic illiterates whose eyes literally glaze over even when some benevolent soul tries to advantage me with insights into money markets and tax shelters and so on. I admit that I don’t understand the whole business of money and sometimes i wish it would just go away. But it won’t. and since I trust that I won’t either, I know, as you must know, that all of us have to focus on dollars and sense if we want to survive these financially treacherous times. So that once again I’ve invited my colleague from The Editor’s Desk, Marshall Loeb, Managing Editor of Money magazine, to help open our minds today on what are the more important but perhaps the somewhat less esoteric aspects of money, money, money.

Marshall, thanks for staying with me for this second program on The Open Mind. Last week I said that we’d take care of the cosmic issues then and get down to what are we going to do tonight or tomorrow morning on this program. And I wonder if you could reveal to me even with that glazed look in my eyes, what are some of the guidelines that you think your emphasis on change, on economic change in society and on social change point us towards in terms of individuals and what they should be doing with their money?

Loeb: It’s a copout I think to say one’s eyes glaze over or, “I’m totally ignorant about this subject”. I mean, the subject of money has come out of the closet. It’s become the most intensive subject for discussion among consenting adults. i think that no longer can we just sit back and let these tides wash over us and say, “Well, what will be, will be”. No longer can we just hold on to one small investment that we have, a stock or a bond, and say, “I shall hold it forever and ever”. No, we have to take charge of our personal finances. Now, nobody does this perfectly. I speak with so many of the so-called experts who confess that their personal finances, while not in total disarray, aren’t absolutely as neat and well ordered as they should be. But it seems to me, Dick, that the key thing is to resolve to take charge of your personal finances. What does that mean? One, take some kind of an inventory as to what you have. Two, put away a fixed amount every week, every month, and save it religiously, or invest it. Three, diversity. Put your investments, however modest, into a variety of different things that you can put your money into. You have a multitude of choices now, you have certain tax advantages in doing it, and you’ll see how rapidly your money will grow. And above all, educate yourself. Read, find out. Find out those broad economic developments that affect those ripples on the surface. Everyone, all of us, all of us have to become armchair economists.

Heffner: You know, I was brought up to believe – and I don’t just think it was my family, although my nephew occasionally says we lack a gene for understanding and making money – but I was brought up to believe that people make money, not that money makes money. And I think reading Money magazine as I have now, I gather that the emphasis has to be on making money with money, not with human effort.

Loeb: No, of course not. People certainly make money. They go out and make money by editing magazines or writing for magazines or laying brick or doing one of the multitude of things that we do in the society and economy. Having made money, they should spend a certain amount on consumption, but they should put a certain amount aside in the form of savings or direct investment. That is the capital upon which our society grows. Unless we have those savings flowing into a large investment stream that is lent out to entrepreneurs, to people who have ideas, to people who run companies, then there would be no expansion of jobs within our society. There would be no expansion of wealth. In fact, as inflation increases, if there’s no expansion of wealth, that means we all become poorer. So it is fair and reasonable that the money you save is put to work not only helping you cope with the economic times, but also in its way to help others.

Heffner: You’ve spoken and written, and I’ve been reading you not just in Money magazine but elsewhere, you’ve spoken and written about changes in our society which bring about change sin opportunities for investments, not just for business, but personal investments. What kinds of changes?

Loeb: Look and see some of the enormous shifts in our society. Our country geographically is moving to the West, the Southwest, and to a somewhat lesser degree to the South. This has to do a lot with the new emphasis on resources: energy resources, nonenergy metals, and that ultimate energy which his food and the growing of crops. As people and businesses move to those resource-rich regions of our country and also regions where many high-technology enterprises have started, then all sorts of new companies are created, and around them, large numbers of satellite companies and services. For example, if you are resident in a city that is rapidly growing in terms of population because there’s economic opportunity there, then you may not necessarily work for the major company in that community, but you can easily work in some kind of an ancillary activity. If you’re an accountant, if you’re a grocer, if you’re a druggist, if you’re a journalist, you certainly have more opportunities in one of those rapidly expanding, rapidly growing communities or areas than you would have in a slower growing one. Okay. There is now this vast movement of jobs and people and economic power way from the heavy, old industrial areas of the Northeast and the upper Midwestern states to other parts of our country; not just the Sun Belt, but also to the far West. When you get this movement, you also get opportunities. Opportunities for people to invest, opportunities for people to start new careers, opportunities for people to change careers, opportunities for people to move, do I have to change my career to take advantage of this? Heavens, no. I can invest my savings in one or more of the enterprises that are concentrated in these rapidly growing industries in these faster growing areas of our country.

Heffner: obviously I’m delighted that you made that last point because i don’t want to pick up and move to one of these rapidly growing areas.

Loeb: Nor do i.

Heffner: But you really think there are the kinds of opportunities to take advantage?

Loeb: Of course. Look at the many new industries that are being created now. All the biological industries for example, with new drugs and with new applications of old drugs. Look at the vast expansion of services, hospital services, services to care for our increasing aged population. Look at the new businesses, many of them small, that are developing to serve the two-income family, which is a relatively new phenomenon. Look at all the businesses and services that are sprouting up to serve our various materials resources businesses, such as energy in all of its many forms.

Heffner: What do you think will ultimately be the impact upon our national psychology or psyche if, as you have suggested – and I think the statistics of your circulation of Money magazine will demonstrate that – that more and more and more young people have moved into a concern for and a consideration of and an involvement with the management of their money resources? What changes take place in our national psyche as a result of that?

Loeb: One would hope that there would be a shift out of spending so many of our dollars for immediate consumption, a shift of some of those dollars from that into saving and investing for tomorrow. And to the extent that that happens that’s very, very good for our society. One reason the Japanese have been so successful is that they save and invest such a large proportion of their national wealth relative to our own. As young people, as the two-income family does more and more of that, then I think the country will become more productive, and more jobs and opportunities will be created. Now, I don’t want to make this sound all pan-glossian and big, bright future. I’m saying if that development occurs it would be a very favorable one in our country.

Heffner: Is it occurring?

Loeb: I think so now, particularly with the new tax advantages that are given to investment. We’ve reduced the capital gains tax substantially. The maximum tax has come down from 28 percent to 20 percent. That’s really a vast incentive for investing in stocks and in other, and in ventures in which you get a so-called capital gain. Just think, you’d pay no more than 20 percent taxes on any profits, usually on profits on investments that you’ve held for a year or more, be they securities or ventures. We have got the new individual retirement accounts, the expansion of the KEOUGH plan limits, rapid depreciation for investment in real estate so the incentives are there, and I believe that people are becoming more and more educated, alert and aware. And as you point out, the rapidly rising circulation of the magazine I work for is one of many symptoms of this very favorable development in our country.

Heffner: Is there some possibility that our involvement with dollars and increasing the returns on what we’ve made will change us further? I meant before some more profound psychological change. You mention one: perhaps moving away from the now approach to things that now I’m going to consume, maybe there’ll be no tomorrow. And you’re suggesting there is a tomorrow.

Loeb: Well, Dick, I don’t know if this goes directly to your question, but one thing that my colleagues at Money magazine and I sense very much is a rise of the quality market. Or put another way, I think we Americans are learning to live more like Europeans. Europeans who have put a premium on their limited supply of material goods, and therefore they have emphasized buying quality items, items that really serve well and last long because they are more efficient and therefore more economical in the long run. I’m talking about educated and even quite affluent Europeans who do this. Now, as you go throughout our country (and I’ve been lucky enough to travel to many parts of the country in the last several years) and as you go around and you speak with people who are involved in marketing, whether they’re selling books and magazines or wines or cars or clothes, you see this remarkable thing happening. You see that the people who are selling high0quality goods – by which I do not mean necessarily the most expensive thing on the rack or on the shelf or the designer label – but really high-quality merchandise, they are doing very well indeed, even in these recessionary times. And the people who are selling the faddish, the flashy, the easily disposable, the easily dispensable, they are really having a great deal of difficulty. So if you’re going into merchandising, marketing, retail sales, you want to do well. And I would think two things you could do is to somehow sell to the growing areas of our economy, and there are many of them, and also to concentrate on quality. We Americans are becoming increasingly educated, sophisticated consumers. And as such, we’re learning that less can be more and smaller can be better if the goods that we buy deliver real value for money.

Heffner: But hasn’t the emphasis upon shoddy, upon mass sales, upon more is better, not less can be better?

Loeb: Those industries are in trouble today.

Heffner: But haven’t they been basic to making the economic wheels go round in this country?

Loeb: I think that’s a questionable proposition. I think in certain sectors, Dick, that may have been the case. But right now we see that the people who are doing well in this economy, really well, and not only are creating wealth for their communities but also creating jobs and investment opportunity, those are ones who are producing the high-quality goods. Why are Japanese cars selling so well in this country? I think one major reason is that large numbers of drivers perceive them to be value for money and high-quality goods.

Heffner: You said before that we are tending to become more European in our tastes, in our ways of buying things. Not so long ago one thought that European ways of doing things were the ways of the past, not the ways or the wave of the future. You’re turning that around now.

Loeb: I think the West Germans have been successful in the last 25 years or so, although they’re having some transitory economic difficulties at the moment.

Heffner: But does that mean that what we banked on, let’s say in the early years of this century, right up until the 79s?

Loeb: I don’t think that high quality and sophisticated consumer is in any way inconsistent with a fast-growth economy.

Heffner: You don’t?

Loeb: No, not at all.

Heffner: You seem in fact to be saying that one might be the basis for the other these days?

Loeb: Of course. Sure.

Heffner: These days.

Loeb: and I think that’s one of the interesting changes and opportunities going on in our country at this moment. It’s a marvelous time to be a young person and to see this whole panoply of choices in front of you. I mean, for one thing, just think, when you and I were embarking on our careers, this was very largely a white-male nation and economy. Sure, discrimination still exists today, but certainly doors have begun to open to females and to non-whites. And I think that just not only broadens opportunities for our society but also will give us a remarkable competitive edge against our allies and competitors.

Heffner: Why do you say that?

Loeb: Well, I remember addressing a group in England some years ago, and the other person on the program was David Ogilvie, the British or Anglo-American advertising executive. And he looked out at the audience and said, “Marshall how does this audience differ from an American audience”? And I said, I look and I said, “I don’t know. Tell me, David. They dress a bit differently”. He said, “Notice how many few faces of women you see in this audience”. Now, you can argue you still see too few faces in an American executive audience. But you see more and more. We are far ahead of our allies and competitors in Western Europe, and certainly far ahead of those in Japan, Latin America and the Middle East in at last beginning to admit women to positions of power and influence in the economy and in the society. And that means we’re going to have a higher pool of talent and merit to choose from in the future. And having that bigger pool, we’d have to be very dumb not to pick better leaders than we have had so far.

Heffner: And what’s the impact of that larger pool when there are fewer jobs?

Loeb: I don’t think that there will necessarily be fewer jobs. Virtually every month in Money magazine and elsewhere in the press, I’m sure, we see articles of the career opportunities that exist. The vast demand that’s out there still today for computer programmers, for example, and various experts and technicians to apply a multitude of talents to the rapidly growing computer. We see still demands for engineers, for geologists, and not just for those people who have got their master’s degrees, but people how are high school graduates who somehow serve in those growing industries. We have the anomaly today of a large unemployment rate at the same time that there are certain jobs that we can’t fill. And the problem that we face as a nation is that there is not enough in the way of employment for the lesser-skilled people within our society, those people who are disadvantaged because they don’t have sufficient education. And therefore, as I said on our previous program, it seems to me that arguably our most important national domestic priority is to do everything that we can to equip these people with the skills and the education that they need to compete in this society which is loaded with opportunity but also fraught with peril because it is so complex and such a premium now is being put on human knowledge.

Heffner: Okay. Those who do have that knowledge or who have been lucky, been more fortunate in terms of the terms of their birth, what do we do with our money?

Loeb: Well, it’s not only a question of terms of their birth. Most of the people I see now with a few dollars to invest are people who themselves were born into lower-income or lower-middle-income groups and who, through work and maybe some good fortune in the past generation or so, have managed to save some. I would say first of all, diversify your investments. I believe that you should spread your investments out among perhaps common stocks, bonds, money market funds, and perhaps some real estate and tax shelters.

Heffner: Why? Is that an indication you’re afraid one or another may disappear?

Loeb: No, no, no. because these things, if you’re not in for some kind of a quick killing – and I think to behave that way, to be in for the quick one is very shallow and unwise – if you’re looking for long-term growth, then these various investments behave in different ways at different times. Some grow more rapidly in certain periods than others. Therefore it is wise to spread your investments among several of them. If you don’t have the time or the inclination to do that, the very sensible thing to do is to put your money into a mutual fund. That way you get professional management and a diversity of investment. There are some funds, as you know, that invest in stocks. There are other funds that invest in bonds. There are still other funds that invest partly in stocks and partly in bonds. And then of course there are that relatively new and marvelous invention the money market funds. That way you can get a diversity of investments and you get professional management. As well, you can put your money into what is called a mutual fund family. That would be one company that would have a variety of mutual funds: a stock fund, a bond fun, a money market fund, and so forth. And you, with a phone call, could move your money, however small it was, from one fund to another as you thought economic conditions changed. Now, where you put your money obviously depends upon your age, your stage in life, whether or not you’ve got family responsibilities. If you’re a young person, unmarried, or married with no children, and what you’re really out for is to build some investment nest egg, then you really ought to be able to take somewhat more chances by investing in growth stocks, perhaps of smaller companies, which by their nature are riskier. But the people who invested in the Xeroxes and the IBMs of yesteryear are very fortunate and happy that they did so. If you’re a person of middle years with children growing up, you have to save money for college, then you have to be a bit more conservative and get more of a balance perhaps in your investments, and perhaps invest in the blue chip, big companies. If you’re an older person and what you’re most concerned about is immediate income for your present or impending retirement, then you put more funds into bonds that will guarantee you a relatively high yield for a long period of time to come. I think the best single investment at the moment are stocks. That’s an heretical point of view to take because stocks, after you squeeze the inflation out of them, Dick, have crashed more than 50 percent in the last ten years. I mean, the decline is almost as bad as it was during the Great Depression of the 1930s.

Heffner: But you’re talking about a turnaround now.

Loeb: I’m saying that even if we have a relatively slow-growing economy, Dick, stocks have come down so low that now many of them are good buys. And let me give you the ultimate proof. The people who are running American business. We see them going out and trying to acquire other corporations by buying the stocks of those corporations. These managers, high managers, conclude after all their studies that it’s a lot more economical to buy these underpriced, these bargain-priced stocks than to create enterprises of their own. There are many companies around that are worth more dead than alive. Which means that if you were to declare bankruptcy or just end the company and break them up and give the assets to the shareholders, the shareholders would collect a lot more in real money than the stocks are selling for in the marketplace.

Heffner: You know, it’s funny. I said before that I was brought up thinking that it isn’t money that makes money, it’s people and their labor by their hands or their minds. I have a sense that what you’re…

Loeb: Well, I agree with that, sure.

Heffner: I know you do, because you responded to that very well. But I have a feeling that what you’re talking about now, well, let’s put it this way: as a teacher and as a parent I’ve been very much concerned that the young people I deal with, my sons and my students, don’t live in a world as open as ours was when we got out of college or when we were ready to go into the world of work. In a sense, what you’re talking about is a surrogate experience for the openness that we enjoyed, using one’s resources to be involved in a great many things that are expanding in our society.

Loeb: Well, you can do that certainly by investing, but we all know people who, young people particularly who are going off and participating very directly in this. We see journalists who are starting newsletters and small magazines in these growth businesses and growth regions. We see technicians and blue-collar workers who are moving off to go to work in these businesses. We see wildcatters all around. I forget the figure, but it’s well over 1,000 companies have opened up in Denver alone in the last couple of years, most of the related to energy.

Heffner: You’re really betting on the future, aren’t you, financially, economically?

Loeb: I am saying that we’ve got a lot of problems in this country, but we have got the material resources and the human resources. And if we put it together right in terms of policy that indeed the times ahead can be very, very good indeed. We have no physical constraints upon us. If you and I were living in Germany or Japan we’d have to worry about where we got our farm produce because not enough would be generated within our own borders. We’d have to worry about where we got our energy. Oh yes, we import energy, but far less than any large, large industrial power in the world. So we have got a combination of agriculture, energy, and nonenergy resources. We’ve got an advanced technology, and we’ve got the human resources.

Heffner: On what better note to end a program? Thanks for joining me today, Marshall Loeb.

Loeb: Thank you, Richard.

Heffner: And thanks, too, to you in the audience. I hope you’ll join us again here on THE OPEN MIND. Meanwhile, as another old friend used to say, “Good night and good luck.”

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