Finessing A Recession Part II: What Now?


On June 8, 2008, I posted a surprisingly prescient blog entry titled Finessing A Recession. It was a muted, mildly upbeat musing on what looked like the beginning of a major recession.

As a longtime student of financial markets and a reluctant realist (are there any other kind?), I tried to put a positive spin on an economic system on the brink of spinning out of control.

Because the United States is an essentially commercial country founded on a perennial optimism about the future of the human condition, there is a social taboo in business circles about offering warnings of impending doom. This genuinely separates us from our European and Asian cousins who are heirs to static social systems and endless wars with neighboring nations.

It would be helpful to see how my pre-meltdown advice looks in a post-meltdown world. Here is a link to the initial blog entry:

What follows is a short updated summary of where things are now and might be headed:

Realize that all economic downturns eventually bottom out and things get better. History suggests that most down economic cycles take anywhere from two to seven years to run their course. Ironically, it is at the point of maximum pessimism where the real opportunities are often found.

That is probably still true; but it could take a generation or two to reform and modernize our banking laws. The relentless pace of technology and scientific innovation will continually disrupt large, static, and often corrupt bureaucratic political institutions and financial markets.

When you start to hear everyone blabbing about the “greener pastures/heavens on earth” that are to be found in Tennessee, North Carolina, North Georgia, and Las Vegas, it might be the time to both roll your eyes and take out your checkbook.

That is a mixed bag. Vegas has crapped-out because the cancellation of national conventions and a tapped-out consumer sector. Tennessee, North Georgia, and North Carolina are still looking good. They have strong university systems, relatively low taxes and housing costs, and lots of open land. But these states are still at the mercy of a fickle and profligate Congress and the Federal Reserve, and could also be overwhelmed by refugees from both Florida and the Midwest. Yet they remain fairly good bets compared to other parts of the country for both young people and retirees. (Chicago and Philly also look very attractive to this writer’s eyes.)

Start researching local real estate opportunities, broad-based stock indexes and mutual funds, and the possibility of starting a creative business. In Florida, you can enjoy warm winters and rent cheap studio or office space. The trick is to have cash or a secure line of credit during a major downturn or panic, but it takes nerve and a basic optimism about the future.

True. If you are under 35 years of age, there are real entrepreneurial opportunities in this depressing economy—especially in the areas of innovative new digital media, healthcare, and public policy consulting. Time is definitely on your side, but business start-ups in this environment are not for slackers, wimps, or whiners.

As to broad-based, long-term investing in financial markets: It probably makes sense for young professionals with reasonably defined career prospects (medicine, engineering, elementary education, etc.) to maximize their contributions to their IRAs and 401K retirement accounts. For young creative types under 35 with more unpredictable career trajectories, any extra cash (probably from parents or bartending) might be better spent getting an online MBA degree or certificates in the application of high-end software, statistics, or Spanish.

Perhaps the best investment that a young person could make is in a stable interpersonal relationship. This was once quaintly called courtship, engagement and marriage. But the new model for a surprising number of educated young people is the “committed monogamous relationship” without a contract document granted by state and church.

It is clear to this graying/balding observer of young people is that the ability to form durable unions (of whatever variety) is essential to both their wellbeing and a functioning society. A nation that does not foster stable childbearing families is in serious decline. Western Europe, Japan, Singapore, and China are already on this slippery demographic slope.

In one of Kurt Vonnegut’s novels, he referred to a married couple as a “Nation of Two.” It is an apt metaphor for one of the few refuges from the slings and arrows of outrageous fortune.

I would like to end this piece with some shocking observations by the distinguished Chicago-based writer and conservative curmudgeon, Joseph Epstein. They appeared in the March 16th 2009 issue of Newsweek Magazine:

Robert E. Lucas Jr., a University of Chicago macroeconomist and Nobel Prize winner, in his January 2003 keynote address to the American Association of Economists, announced that economic depression was not longer a problem that modern economists had to be concerned with. “The central problem of depression-prevention has been solved, for all practical purposes,” Lucas said, “and has in fact been solved for many decades.” With something that begins more and more scarily to look like precisely such a depression, Lucas—give the man credit for honesty—more recently admitted that he didn’t know what the solutions to our current-day problems are.

The reality for successful creative types is that our profitable small businesses and consultancies will not be bailed-out with taxpayer money if we screw up.

Our hard-won creative economy experiences and expertise are as valid as those of arrogant academics and faux-expert pundits. We have an obligation to our country and world to speak up and get involved in the national dialogue—no matter where on the political spectrum we are.

Most of us can function in a precarious environment without a safety net. Most of our fellow citizens cannot. They need our free-agent creativity and our delight in the possibilities of a free and democratic society.

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