The Upside of Down

by Carrie Kirby on 17 September 2008 22 comments
Photo: Shawn Z. Lea

So far in my life, I've been lucky enough to dodge any direct impact from financial downturns. In fact, when I look back at all the economic calamities I've dodged, I feel almost blessed: Despite the 1970s recession, my parents felt confident enough or clueless enough to start a family, allowing me to be born. Even though I lived in an auto town that shut down during the 1980s, my parents didn't work for the factory and they were able to keep their jobs as a teacher's aid and a letter carrier. Neither my husband or I got laid off after the tech crash, even though we worked in San Francisco -- he in video game software, I writing about technology.

Yet, with the economic horizon darkening every day, I feel a familiar fear tightening in my stomach. We all know the things that can happen to us in downturns: We can lose our jobs. Our homes. Our investments. Opportunities we might have had.

These consequences are real and my heart goes out to any of you out there who are already suffering from this downturn.

However, there are also real silver linings -- or aluminum linings, as a humorous Chicago Tribune piece put it -- in any slow economy. Here's a list of, oh, about 10:

1) Falling housing prices could reverse some financial inequeties.

In recent years, home ownership has become out of reach of more and more people as property prices soared. Those who already owned built wealth, while those who were still renting felt they were shut out forever, increasing the gap between the haves and have-nots. OK, now as droves of previous homeowners lose their homes, it doesn't look like this is a great time for housing affordability. But for each family who must go back to renting and start over, there will be a family who is able to buy the now-lower-priced home. In places like San Francisco, I have friends who have been waiting hopefully for the housing bubble to bust for years.

2) When the economy goes haywire, things get fixed.

If the Great Depression had never happened, we wouldn't have deposit insurance or a raft of other measures that protect our investments. The cataclysmic failures of recent days should never have happened, but at least now the system will (God-willing) get tweaked so they can't happen again. Heck, when even John McCain has been talking about new regulations, this may actually happen.

3) When your neighbors are earning less, consumption competition eases.

During the long stretches of economic growth we've enjoyed in recent decades, U.S. culture has become more materialistic than ever. "Affluenza" causes real problems for well-off families, and those less well off are tempted to go deep into debt by following the conspicuous consumption examples of the affluent. Personally, I have long been concerned about the influence this consumerist culture will have on my children as they grow. Although I'm certainly also concerned about my ability to provide for the kids and save for their education right now, I'm also somewhat relieved at the idea that some of the rampant consumerism of recent years might recede a bit.

4) A pause in economic growth is good for the environment.

There are actually advocates of a zero-growth economy, as strange as that sounds to our go-go capitalist ears. While we assume that a constantly growing economy is a positive, growth as we know it always comes with increases in consumption of natural resources. After all, we are used to hearing that our society is too affluent, and consumes too many resources to sustainably continue. So why is contracting a bad thing? Well, sure, because it hurts. But still -- for the environment, scaling back the economy can be a good thing.

High gas prices have already caused Americans to cut back on driving and seek out more efficient cars. While the higher gas prices can be a true hardship for some -- like those who have trouble buying enough gas to get to work and don't have the option of public transportation -- many, many people have cut back on unnecessary driving to the benefit of us all.

5) Less economic activity means less pressure to work.

In gonzo growth periods, you hear everyone talking about how their office is short-staffed, and how they are putting in extra hours. In times of recession, you see some people working less or not at all. Now, in many circumstances, working less and getting paid less is tragic, but in many other families, it means spending less money and spending more time at home with family. Not as bad as you might think.

Obviously, there are exceptions to this one: In tough times, some people will end up taking on multiple jobs that pay less.

6) Even losing a job can have good results in the long term

I wouldn't wish a pink slip on anyone, especially when there's a mortgage to pay and mouths to feed. And yet ... when Chrysler closed the American Motors factory in my hometown, something very interesting happened. A lot of my relatives and friends' parents lost their factory jobs. And a lot of them went on to earn more money in different kinds of work. They were forced to pause, think about their next move, and choose a new path. One dad went on to take a sales job in a rubber mat factory, and he's now much more prosperous than he ever would have been as a factory worker. Another became a plumber and, eventually, a landlord. He's got a flexible schedule and does pretty well for himself.

If you don't have dependents, debt or other such responsibilities, losing a job can be an opportunity to get away, travel, join the Peace Corps, or focus on artistic projects that you previously put aside because you were busy making money.

7) During lean times, we can learn how to live more efficiently

Look at those Depression-bred folks now in their 70s and 80s. Aren't they pretty frugal and resourceful? If you go through a period of lean years, especially early in your career, you'll learn a lot of tactics that will help you live leaner and put away more savings throughout the rest of your life.

Are these silver linings too touchy feely? How about a couple that may lead to a higher net worth in years to come?

8) If you are in the first half of your working years, bear markets are actually good for your 401(k). Because you have more buying in your future than behind you, any price drop should benefit you more as a buyer than it hurts the value of what you have already bought. Of course, no one near retirement is going to have the same comfort -- that's why people are advised to move more and more of their nest egg out of stocks as they near retirement.

This online discussion points out other bear market advantages for investors.

9) Bargains will be available to those in the position to buy -- and not just in the stock market.

 When I was reporting on the tech downturn for The San Francisco Chronicle, I attended some auctions where office gear from dead dot-coms was sold. Businesses that were just starting out or that had managed to weather the downturn were snapping up foosball tables, velvet couches in obscene colors, and of course tons of computers, all for pennies on the dollar.

It may be bad karma to delight in the misfortune of others, but the way things are going, it's not just foreclosed properties that will become better deals: It's also used cars, furnishings and all manner of goodies purchased on credit by the imprudent or unlucky.

And the top reason to grin through the economic turmoil?

10) The worse it gets, the better chance Obama has of winning the election.

OK. OK! That one only applies to Democrats. So, isn't that a good reason to join the Democratic Party? One more reason to be happy in these tough times!

(Duck.)

[Editor's note: Wise Bread is a group blog written by many talented writers.  Carrie's political views do not necessarily represent the views of the other writers or the management or Wilbur our mascot, who may or may not be wearing lipstick.]

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Paul Michael's picture

It makes my doom and gloom post seem so, well, doomy and gloomy in comparison. As for point 10, if only. Recent polls suggest that some economic problems could favor Obama, but more people still trust Republicans to handle a meltdown. Don't ask me why.

Guest's picture
RIchard

Amid the turmoil of Wall Street the consensus is these problems are arising out of a liquidity, not a solvency, problem. This means companies that are basically sound and solvent, meaning having profitable books with more assets than debt, need cash to carry them over to that period when the income that they have already earned arrives. Basically its like being broke on a Wednesday, but having all your bills paid through the next month, having a full tank of gas in your car, but you forgot to do your grocery shopping and don’t get a check until Friday. Its ramen noodle and peanut butter time, but Friday you’ll have a steak (Veggie burger at J Alexanders for the vegetarians ). We just need to get to Friday. The problem is that everyone you know is eating ramen noodles and peanut butter until Friday too. Just remember the contrarians usually win in the end. If anyone out there has the money for steak now, Buy AIG at $2 plus a share, you’ll be the one every person calls a genius in a year when it is sitting at $40 a share, imagine making 2,000% on your money.
As for the Obama comment, I can only hope that McCain wins, too many skeletons in Obama’s financial closet. Obama has a nice personality, and inspires hope, but when the questions about his financial deals are asked, and not answered, such as his real estate transactions in Chicago, he starts to remind me of the guys on Wall Street making statements like “how this could happen”, as they get in their Porsche to drive to the Hamptons. I want the guy, who has a record of fighting for the little guy and disregarding his Party when it comes to doing what is good for all. If you doubt that is McCain try Google News for the old stories about him fighting the Republicans and Bush.

Guest's picture
Guest

I just wish we Americans could stop with the booms and busts. For once, can we just do things in moderation?

Guest's picture
Kevin

@ Paul Mitchell,

Polls are NOT an accurate reflection of ANY form of measure when it comes to who will vote for whom in November. It has no reflection of the proportional representation that is our elective college, nor do ANY of them sample a large enough sample to accurately reflect the make up of American voters. Besides the before mentioned points, in addition, the methodology and how the pollster frames the questions can completely change results of a specific poll.

Polls that matter are the ones answered before the election, and then post election. With good controls set in, it is possible to compare entry/exit polls to the actual results of said specific district.

Don't get me wrong, Hunter S. Thompson had it right when he said politics is better than sex. Watching/Following Politics is like a crack to me, besides its what I went to school for.

My 2 cents.

Guest's picture
Kevin

Meant to say sample of the population. My apology!

Guest's picture
Marion

I was very pleased to see this post. You make some extraordinarily good points, and I hope that people keep recent events in perspective.

An 11th silver lining, at least for an economics student like myself, is that it provides a lot of fascinating material to study. Mistakes and catastrophes of all forms are best when we learn from them.

Guest's picture
Strabo

As for the Obama comment, I can only hope that McCain wins, too many skeletons in Obama’s financial closet. Obama has a nice personality, and inspires hope, but when the questions about his financial deals are asked, and not answered, such as his real estate transactions in Chicago, he starts to remind me of the guys on Wall Street making statements like “how this could happen”, as they get in their Porsche to drive to the Hamptons. I want the guy, who has a record of fighting for the little guy and disregarding his Party when it comes to doing what is good for all. If you doubt that is McCain try Google News for the old stories about him fighting the Republicans and Bush.

Not to make this an election discussion, but the questions about the "real estate deal" were asked and answered, not only by journalist but also by court and the verdict was: There was not a single piece dubious or done wrong: http://www.chicagotribune.com/news/opinion/chi-0316edit1mar16,0,4441703,...

McCain of 2000 fought against his own party and for the small man. Sadly he isn't available in this election, the 2008 version is sadly the opposite of the old McCain and in party line in everything - and his VP and thanks to McCain's age likely President is downright scary.
Richard Cohen has written something that's pretty much my thoughts on this too: http://www.washingtonpost.com/wp-dyn/content/article/2008/09/15/AR200809...

Guest's picture
RIchard

http://mediamatters.org/items/200706140007

http://www.suntimes.com/news/watchdogs/757340,CST-NWS-watchdog24.article

http://www.suntimes.com/news/politics/124171,CST-NWS-obama05.article

http://abcnews.go.com/Blotter/story?id=4111483&page=1

I was just pointing out what I had heard about his real estate dealings which raised questions, thanks to your links and looking up a few more (above), I now know that Rezko and Obama were friends for 17 years, Rezko was one of his largest contributors, Obama paid $300,000 under the value of the property, Rezko is now an felon, and the Obama real estate deal was at the same time as Rezko's to an adjacent piece of property, sold by a single owner. Does that not raise some serious questions. I have never heard any serious answers. Thank you, you prove my point that whether you are a Democrat or Republican, just like with the troubles in the market, the truth does not always follow when the mouth opens, or when the keys, upon which the words are typed, are depressed. (Note: Your link was an editorial, my links are the actual articles.)

Guest's picture
LK

Thank you for enlightening your readers to your political views in a financial blog. I'm sure we're all now more able to judge the accuracy and slant of your writing.

Guest's picture
Kevin

Thanks for putting a positive spin on the current downturn (recession). With all the negative press, it's hard to remember that things will get better eventually and there are opportunities out there if you look.

I happen to agree with you that sometimes losing your job is a good thing - it happened to me in 2003 and I think it was the kick in the pants I needed to finally think about where I was headed. It sucks at first, but it gets better.

Carrie Kirby's picture

LK,

 There is a big difference between a blog of any kind and a news article. You can assume that bloggers have plenty of personal slants and will express them freely online. With reporters, however, we count on them to delivery accounts of events as neutrally as possible.

As for accuracy, I don't do any original reporting here. It's all my opinion, with facts and figures presented only to back up my point. Rather like an Op-Ed piece in a newspaper. No reason to hide my support for one candidate or another -- although it's not always relevant. 

I blog at www.shopliftingwithpermission.com.

Julie Rains's picture

I think of writing for Wise Bread much differently than writing for a personal blog, especially since this is a group blog. I love being able to add personal slant and don't think that anyone (okay there's probably an exception somewhere) can write without some sort of bias -- even real journalists -- and sharing personal experiences and thoughts is a great way to get a conversation going. Just for the record, I personally do lots of research in order to make sure that the information I provide is accurate, even if this is a blog.

 

Guest's picture

I love the optimism of this article! Regardless of where the economy or markets head over the next decade there will always be opportunities to make what you want of your life.

This is definitely a time that favors net savers, so keep on putting away money and picking up depressed assets. Everything is up for grabs; from real estate, global stocks, to commodities. Determine what will win over the long haul and buy in now while it's cheap. I've hesitated getting into China for the last year b/c of sky high valuations..now is a good chance to do so, at least incrementally as things cool off.

One thing that scares me, though, is when crowds rush towards protective group-think. This is illustrated with Obama saying that what's happened in the past few days is "nothing less than the final verdict on an economic philosophy that has completely failed."

Freedom has not failed...you cannot dissociate social from economic freedom. The right to live freely means you must also have the right to employ your capital resources freely. It is a mistake to call this financial catastrophe a failure of Capitalism. There were many people duped by unethical mortgage brokers, there were flaws in financial models, and there were risks taken that probably shouldn't have been taken...but in the end it's the freedom to live on your own terms (economically this is called Capitalism) that will continue to provide prosperity and real hope to the world.

Guest's picture
Hypocrite much?

Well, LK, thank GOODNESS you are able to prevent yourself from falling into partisan politics on your blog about motherhood... oh, wait.

That's what we refer to as an EPIC FAIL.

Guest's picture
jerry

thanks i needed that

Carrie Kirby's picture

... is a pretty cool blog. And I don't think there's anything wrong with the post cited, even if LK did get prickly with me.

I especially like this post, and I don't mind skipping over any "unabashed patriotism" to get to it:

http://modernnomadism.blogspot.com/2008/09/new-world-order-update.html

Heck, that's what I like about blogs. We know where the people we're reading are coming from.

I blog at www.shopliftingwithpermission.com.

Guest's picture
jerry

unfortunately its within our genes to be ruled by greed and fear (not to mention power)--thats what causes booms and busts

Guest's picture
Guest

Meow! Just kidding.

Guest's picture

All I have to say about Obama is that he is definitely favored by the folks that caused this financial meltdown:

http://www.opensecrets.org/news/2008/09/update-fannie-mae-and-freddie.html

3 years in the senate, #2 in contributions from Fannie & Freddie. Nice.

Guest's picture
Elizabeth

3) When your neighbors are earning less, consumption competition eases.

My husband and I are mid-40's and early 50's. We've been in the minority with our acquaintances for years, as they spent money they didn't have on cars, luxury homes and furnishings, eating out, and vacations.

We found "Your Money or Your Life" and "Tightwad Gazette" ten years ago. Coupling frugal living and tracking every expense, no matter how small, with sound investment goals, has put us much further ahead than where we would have been without these tools.

I wouldn't wish it on anyone, but, now our peers are like the grasshopper that sang all summer, and we are the ants.

I only wish now is that we would have worked even harder on our goals. You can bet that every spare dollar we get now will go towards the investments that have suddenly become more affordable.

Guest's picture
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Guest's picture
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