In January 2007, I wrote this post questioning and criticizing some conventional pf blogger advice and the long term consequences of their actions.   Flash forward to today May 2009 and we’re beginning to see that what I suggested would happen is happening exactly as I said it would.

To quote from my own article:

What really bugs me about PF Blogger “advice” that starts off with “Don’t buy a new car” is that the writer really hasn’t bothered to stop and think things through thoroughly.  In essence, many bloggers don’t think about the long term consequences of their suggestions.

What are the long term consequences of that advice?  Let’s walk through it.

1. Everyone stops buying new cars on the advice of pfbloggers because this will supposedly make them rich.

2. GM, FORD, Toyota, etc stop making new cars because no one is buying them.

3. The Auto Manufacturers file for bankruptcy and lay off all workers.

4. With no new cars, dealerships nationwide close down and lay off workers.

5. Federal, State & City governments that relied on tax revenues from these industries lose tax revenue.

6. Federal, State & City governments furlough workers.

See the pattern?

So where are we today?   States have lost billions in tax revenue from lost auto sales, hundreds (if not thousands) of dealerships have closed and thousands have lost their jobs.   We haven’t even seen the full effect though as I predict GM will file for bankruptcy some time during the summer.   After that things will get way worse as the cascade of domino bankruptcies wrecks havoc on the economy and increases job losses.

It can be argued that if consumers hadn’t over extended themselves we wouldn’t be in this mess and there is no argument from me on that but we also wouldn’t have had the economic growth (e.g. stock market) that we did during the past 7 years.    So what is the appropriate solution?  It depends.

I firmly believe that each person out there has a passion.  Some people love sports and some people love shoes and if going to a stadium to watch your favorite team or if going to the mall to buy a new pair of shoes every week makes you happy then you should do it.   Likewise, people who love to own a new car every three years should go and buy one.   The key, like everything else, is balance.  I don’t believe that people can be passionate about owning:  a new home, a new car, new clothes, new shoes, new ipods, etc.

I see too many people just following the herd and not pursuing their passion.  I personally love travel and I’ve traveled all over the world but I don’t buy a new car every three years nor do I buy new suits every month.    I’m passionate about gardening so I invest money in gardening tools, pots, seeds, fertilizer, and such but I don’t buy new shoes every week.

The true cause of the housing mess was that people who weren’t passionate about owning a home bought one because everyone else was doing it.   Some saw individuals that were passionate about real estate making money that others thought they could get in on the game, all the time not having any passion about owning a home or passion about being a real estate guru.

It was the exact same thing during the dot com era.  People who were not passionate about technology left their jobs to go work for tech companies in the hopes of winning the IPO lottery to get rich quick.    I currently see many people beginning to (re)learn this lesson.   My advice is to stick to your passion even if it doesn’t make you rich.  It is better to be happy than rich.