11/28/2010

Upsides to the recession

I wish I had read Robert J. Samuelson’s article when it was originally published. He excellently predicted what we are now experiencing in today’s economy. He clearly elucidated that the usual side effects of a recession are higher unemployment, weaker profits, and you nailed it—more stress! Sounds like my job. He then breaks down a major benefit of a recession: it dampens inflation. He noted that a US recession might also reverse the upward spiral of oil prices and trigger a faster, and healthier, drop in home prices—which it has done both. At the end of 2008 and through the 2nd quarter of 2009 we were paying well under $2.00 for a gallon of gas at Costco, and about that time a number of people were getting into some pretty inexpensive houses after the marketed crashed. This decline in housing prices has continued the slump in the real estate market, but it has introduced more people to the market that previously could not afford a traditional mortgage at the inflated prices. I think that these are the smarter people who did not jump into the housing market with ARMs and all the other exotic mortgages. Now, here we are: over built and where are all those titles? I only see the situation getting a lot worse in the next few years before it can ever start to get better.

4 comments:

Grant said...

I do think he correctly spotted quite a few of the telling indicators for an upcoming recession as well as identifying a few of the potentially positive consequences. However he also underemphasized the seriousness of the unemployment problem and how long the recovery from it might take. So while there may be some benefits for the economy as a whole for those who have taken the brunt of the downside this recession has been awful. While it is easy to second guess now and ascribe prophetic powers to those who predicted right I'm also sure that the Fed would have been even more thoroughly critcized had it not tried to prevent it to the extend it could.

Parag said...

No matter what reports say the recession will not end until the unemployment rate drops, credit is accessible, and money is invested in green technology and education reform. America success is not riding on today but tomorrow, the next generation is the key.
Did the recession end

als22 said...

I think the recession and the past 6-8 years have really been productive. Yes it has hit all of us, but we kind of deserved it. I think we do need to stop the blaming and take personal responsibility. I think we are starting to do this and we will be better off in the long run. Two key upsides I feel are the reduction of credit spending and the increase in personal savings. I know we need the spending to get the economy going but more people are reducing debt and saving and in the long run, this will help all of us be better prepared for financial stresses.

Dave said...

-1 on Grant for spelling.

I hate this kind of crappy economics pushed by people like Samuelson.

The macroeconomy is not a monolithic thing that is either good or bad.

So, a recession is a predominance of bad events over a contiguous period of time.

Viewed in that light, all recessions "have their good sides".

But appealing to them as some sort of silver lining ... is like some form of minor mental illness ... a neurosis, if you will. It's like saying that blizzards are good because they make families spend time together. It's (just a little) twisted.

In the end, I don't agree with iPoser's dark forecast, but I can see where he's coming from.

Of course, this leaves me not liking ALS22's viewpoint too much either. I do agree what we ought to stop apportioning blame, and just move on.