There is an old saying that says, “When the going gets tough, the tough get going.” For some dentists in some areas it has already gotten tough. Most of the financially savvy agree that storm clouds are gathering on the economic horizons across the country. Notice how the irrational exuberance of the real estate market has changed to outright jitters. If we are going to survive and even thrive in the changing economic climate we are going to have to respond not only with energy and determination but also with our minds and work smarter, not harder. To make the cliché a bit more useful to us, perhaps it could be modified to read, “When the going gets tough, the tough get tactical.”  Tactical considerations are less important when the sun is shining and all is well. When the waters are rough, however, tactical considerations become much more important. A smooth sea never made for a skilled mariner.

 

It’s been said that if you spend 15 minutes a year thinking about the economy, you’re wasting 13 minutes. That’s generally true. But as an amateur historian, I can’t help myself. I’m forced to believe that this is a time when economics is worth some real thought. Let's spend a few minutes reviewing some of the factors that might affect our business in the near future.

 

Just as night follows day, fall and winter follow summer. Such is the rhythm of life in the eternal ebb and flow of the grand machine. We have all heard of the "business cycle", where after a period of economic expansion we have a cooling off period - a recession - a normal adjustment, eliminating the excess liquidity distorting the system. Most are minor and temporary downturns.

 

We have had a great run for the past 20 years (with the exception of the bursting of the tech bubble). All of our recessions have been softened by the tinkering of Alan Greenspan and the Federal Reserve flooding the markets with currency as a result of expansion of credit. The money supply in the US has grown from $302 billion in 1959 to over $10 trillion today - an astonishing explosion of over 3,000%! This liquidity is the engine behind the consumer spending boom and the housing bubble.

 

This spending boom was exacerbated by people pulling equity out of the inflated price of their houses while at the same time the national savings rate dipped into the negative side (we spent more than we earned as a nation) for the first time since the Great Depression. As a nation we have been on an unparalleled consumer spending spree financed primarily by borrowing. Outstanding consumer credit, including mortgage and other debt, reached $10 trillion dollars in 2003. How much is 10 trillion? A stack of $100 bills would be about 5 feet high to reach $1 million. So $10 trillion would be 10,000 miles high! A stack that reaches half way around the globe!

 

Dental practices have been a significant benefactor of this increase in discretionary income, especially the "wants based" practices with a higher percentage of elective procedures. Cultural forces combined with demographics have created an explosion in the number of purely cosmetic procedures accomplished. The rising tide raised all boats.

 

 At some point in the near future our country is going to run out of credit. Our federal government has run immense deficits even before adding on huge new spending like the war in Iraq and Katrina relief. Interest rates have already begun to rise.  Close to $500 billion in adjustable-rate mortgages will have interest rates reset in 2006. Worse yet, about $1 trillion in mortgages will be reset in both 2007 and 2008. That will have an enormous impact on many households. Ask yourself what would happen to you if your home payment shot up by 40-60%.

 

The longer a natural recession is postponed by infusions of liquidity the worse the ultimately occurring recession. The political animals that run our economy can’t seem to get this lesson.  Only those of us over 50 possibly remember the last significant one in the early 80’s where interest rates hit 21%, inflation at 13.5%, and unemployment the highest since the depression.

 

We have already noticed that housing prices have softened and inventories have risen. Consumers are being forced to begin paying back what they borrowed and spent. Bankruptcies and foreclosures are increasing.   The morbidly obese are on a diet and we (dentists) are selling bon bons. Depressed yet?

 

Let’s now do two things – deal with the depression and get tactical.

There's an Italian philosopher named Gramsci. He talked about practicing the pessimism of the mind and the optimism of the will. I believe that what he means is to look around and see undistorted reality. If all the signs add up to potential calamity, whether it's global warming or the economic situation, it’s normal to experience  “pessimism of the mind”. Then by the miracle of that uniquely human experience – choice – we can choose to believe that there are things that we can do that will bring a different future about. Not by denial of reality but by “optimism of the will”. I will myself to change the realities and the impact on my family that I see so disturbing.

 

It is time to get tactical NOW.

 

Dr. Fred Troxel

Big Pine Key, FL

ftroxel@bellsouth.net