Retirement Living in Elkhart, Indiana

In early February, President Obama was looking for a place to symbolize the recession. He wanted to rally support for his proposed $800 billion bailout of the economy, a bailout that he admitted would send the Federal government’s annual deficit to $1.7 trillion in fiscal 2010.

He chose Elkhart, Indiana, which advertises itself as the recreation vehicle capital of America, and hence the world. Elkhart’s economy has collapsed. There is 15% unemployment and no hope in sight.

For years, the RV industry grew. The scene in About Schmidt was representative. The retired middle manager bought an RV for his retirement. Then his wife died. He went out on the open road by himself. He went back to his home town. Nothing remained of the places he remembered.

This industry is today representative of the profound economic breakdown we are experiencing. This is not business as usual. The industry is close to collapse.

In 2005, the Indiana Business Magazine ran a story: “On a roll? What’s behind the dramatic growth of Indiana’s RV industry? Baby Boomers buying vs. higher fuel costs.” It reflected the final year of Greenspan’s decade-long bubble economy. Like California housing, the RV industry seemed to levitate high above economic rationality.

It would seem like the past few years should have been tough on the recreation-vehicle business. The economy was in recession for a time and sluggish even longer, and gas prices have been moving ever-upward, which would seem like a poor climate for selling expensive discretionary items that don’t exactly sip gas. Yet the RV industry — which is centered in Indiana — in recent years has enjoyed dramatic growth. And as sales have grown, Indiana’s share of the business has increased as well.

These words now seem as realistic as a real estate salesman’s promise to some young couple that paying ten times annual income for a house was a good bet. The home would appreciate.

The article reported that in 2004, RV manufacturers shipped 370,000 units. Of these, 236,000 were made in Indiana. The article quoted Dennis Harney, executive director of the Recreation Vehicle Indiana Council and the Indiana Manufactured Housing Association.

“The RV industry directly employs nearly 20,000 people and indirectly employs another 20,000,” he says, adding that most of the jobs pay well. “The RV industry enjoys a lack of competition from foreign producers — very few RVs are imported from competing nations. Although we’re a quiet industry and the business is distributed among a number of manufacturers, there are many states that would relish the opportunity to have an industry like this.”

Not these days.

He went on to say, “I think it’s a critical industry for the state that’s enjoying growth. I think the future is very, very bright for the industry.”

Fast forward to November 2008. The RV Dealers Association sent out a press release in the form of a letter to President-elect Obama. It was a plea for a government bailout.

There are an estimated 12,332 RV-related businesses in the nation with combined revenues of $37.5 billion in 2006, including a combined payroll of nearly $5 billion for American workers in the manufacturing, retail and service sectors — employment which, as with boating, totals some 150,000. One out of every 12 American households owns an RV — a category that ranges from inexpensive pop-up tent campers to large, self-propelled motorhomes. Today, there are 8.5 million RVs in operation.

It noted that Elkhart, Indiana, had the highest unemployment rate in the nation. It still does.

Banks had ceased lending on RVs, the letter said. I wonder why. Here is a product whose largest market share is people age 55 and older. The recession is cutting into their income. The falling stock market is cutting into their retirement portfolios.

Consider the economics of an RV. Like any vehicle, RVs depreciate rapidly. They are consumer goods. They are not capital goods.

They cost a lot to operate. Gasoline is only part of it. There are maintenance expenses. Also, they suffer from competition from the used RV market.

No one needs an RV. Anyone can get into a car and drive to a vacation spot. He can pay retail for a motel, eat fast food, and fish for two weeks. Then he can go home. The cost will be far less than the depreciation of an RV plus 6 miles per gallon. The economics of the RV have little to do with efficiency. It has to do with lifestyle.

There lies the rub.


Over the last 18 months, Americans over age 55 have suffered a reversal in their capital that has not fully registered psychologically. They will not be able to afford a comfortable retirement.

This was true 18 months ago, just less obvious. Very few Americans enjoy a combination of private pensions, annuities, and Social Security payments sufficient to fund what Social Security says retirees need: at least 70% of their pre-retirement income in the last year of employment. They are oblivious to this assessment on the Social Security website.

Today, about half of all workers are covered under an employer-sponsored pension, and many people are not saving as much as they should. While Social Security replaces about 40 percent of the average worker’s pre-retirement earnings, most financial advisors say that you will need 70 percent or more of pre-retirement earnings to live comfortably. Even with a pension, you will still need to save. If you will not have a private pension, you will need to save more — and start saving sooner.

Yet throughout Greenspan’s bubble economy, the savings rate of American households fell, going negative in 2005. The boom fooled Americans who owned stocks that they were getting richer. They weren’t. They were merely benefitting from the greater fool theory of investing. That theory has brought down the real estate bubble. There will be further declines. It has ended the stock market mania. And it has just about shut down Elkhart, Indiana.

Americans have not yet recognized what has been done to them by the Federal Reserve System and the highly leveraged banks and hedge funds that thought the good ship Effortless Wealth had come into port. The hot-shots did not understand Ludwig von Mises’ theory of the business cycle as the product of central bank monetary inflation. They never saw it coming.

Now the investors who believe the same dream, but without multimillion dollar severance deals, have seen their dreams called into question.

They have not yet dumped their stocks. They have just stopped buying as many. The fall of 55% by the Dow and the S&P 500 was not accompanied by a huge sell-off. The decline has been one of dribbling away. The dreams of would-be retirees have not yet been smashed. They have merely dribbled away. The crash has not yet come. It will.


First, there is a dream: easy prosperity. This dream is funded by fiat money. Next, there is a boom: easy prosperity. This boom is funded by fiat money. Next, there is reality: the stabilization of fiat money. Next, there is recession: the end of the dream.

Then what?

In the conventional scenario, there is recovery. But recovery since Greenspan arrived as chairman in October 1987 has always been based in more fiat money. That was his solution to the 22% one-day fall in the stock market in 1987. That was his solution to Bush I’s recession in 1991. That was his response to the recession of 2001 and 9-11. Again and again, fiat money solved the problem. It brought back the recovery.

It is not working this time. The federal funds rate is at 0%. The economy is still falling. The Federal deficit is headed toward $2 trillion a year. No recovery is visible.

When recovery comes, it will be accompanied by price inflation on a scale never seen in peacetime America. Those who rely on pension payments and annuities will see their income shrink. They will be the primary victims.

The target market of the RV industry will be the victims of the recovery’s familiar solution: fiat money. They will remain the victims for the foreseeable future.

The people at CNBC do not see this yet. The high-paid hot shots on Wall Street who lost their jobs may suspect that the gravy train has gone off the rails, but what can they do about it? They are trained in high finance, and high finance is now an appendage of the Federal government. The era of salaries has replaced the era of stock options and bonuses. The Democrats have vowed that the old days will not return. I don’t think the Republicans are likely to run on a platform to bring back the world that ended in 2008.

When they run on a platform to end Medicare, I will be impressed. In 2016 or 2017, and maybe earlier, Medicare goes into the red. At that point, political reality will meet actuarial reality. There will be an inter-generational pile-up. The geezers will lose. They won’t have the votes in Congress.

People over 55 today will spend their golden years in the equivalent of Elkhart, Indiana.


Drive up Main Street in your town. All over America, Main Street — where people drive at 4 p.m. — is the same: Lowe’s, Home Depot, Office Max, Office Depot, Wal-Mart, McDonald’s, Burger King, Taco Bell, Chili’s, and T.G.I. Friday. Wal-Mart is doing well. It is the place that sells what people really need, and it sells it cheap. McDonald’s stock price has held up. Like Wal-Mart, it sells cheap.

Fast food saves time and is addictive: high fat. People want it, and it does not cost much. But yuppie restaurants that sell lifestyle are headed for trouble. People don’t have to go to them. They offer atmosphere, but it’s expensive. It’s not like the neighborhood tavern, which rests on friendship. It’s ersatz community. Television screens with no sound are all over the walls, often tuned to different sports events. Silent sports are ersatz sports.

If I were advising a fund manager on what to sell, it would be any company whose income relies on restaurants with silent TVs. There are no TVs at McDonald’s and Taco Bell. Those places make it on volume. There is no community. They get you in and move you out. Only the playgrounds for children keep anyone there for long. Nobody takes his wife to a fast food restaurant for a romantic evening. He may take her so that she can get a break from the day’s routine. That incentive will keep fast food restaurants solvent after the yuppie restaurants have closed.

Liquor sales keep yuppie restaurants going, but liquor by the drink is expensive. If someone wants to drink, he can do it at home cheaper.

The crunch will come. The yuppie restaurants have survived so far, but they will face the reality of discretionary income. It’s shrinking, and it’s beginning to go into savings. The more fearful Americans become, the higher the percentage of discretionary income they will save.


We have not yet seen real fear. We will. We have not yet seen Main Street in the condition that it has become in Elkhart, Indiana. We will.

President Obama told Elkhart that he had not forgotten the city. I suspect that by now, he has. The photo op is over. The bailout was passed. The economy is falling. The least of his concerns — and yours — is the fate of a city that bet its future on the RV industry.

In every recession, there are permanent victims. The RV industry is the poster child as this recession’s permanent victim. The industry is finished. Its target market — retirees and people who dream of becoming retirees — is also a permanent victim. The dream of freedom, permanent income, no job, no kids at home, and the open road was nice while it lasted, but it’s over for most people. As they die or get shipped off to retirement homes, their children will sell the old folks’ RVs for pennies on the dollar. The supply of used RVs will be strong for the next decade.

Elkhart, Indiana is the symbol of the boom gone bust.

If life on the road has been your dream ever since Then Came Bronson, find a new dream. As with Bronson, the show has been canceled.

March 11, 2009

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2009 Gary North.