OPTIMISM—If you are willing to look really, really hard.
This past weekend I downloaded Time Magazine to my Kindle and found a very unusual article. I say unusual because the author puts a positive spin on what is going on in these tough economic times. I have completely stopped watching media coverage because, well, I am burned out of all the negativity being tossed around. Justin Fox , the author, writes four positive points that we can all learn from.
1. The stock market is no longer overpriced.. The Dows’s descent below 7,000 for the first time was greeted with much wailing on Wall Street and the media. That is understanding, the market’s fall reflects a growing consensus that the current recession will be nasty and long. In addition, if you own stocks, you cannot sell them for nearly as much as you could previously. But the recent fall in stock prices also means that are now, by just about every possible measure, fairly priced or downright cheap. It does not mean prices won’t go even lower. It does mean there is no longer a huge, unsustainable overhang of overvaluation weighing on the market and the economy. House prices may not have reached this point yet, but they are getting there. The great turn of the millennium asset bubble has finally deflated. This is going to teach us that buying and selling houses and financial instruments do not bring lasting prosperity. What brings prosperity is work.
2. Consumers are adjusting to the new economic reality and fast. The simplest explanation of what led to this financial mess is that too many American consumers spent more than they earned. That is ending in dramatic fashion: consumer spending dropped in the fourth quarter at the fastest rate in 29 years. After skidding along near zero from 2005 through 2007, the savings rate hit 5% in January, the highest since 1995. This rapid retrenchment is the main reason we sank so quickly into a deep recession. But as long as the consumer pullback doesn’t spiral into an economic shutdown, it is a healthy medium and long term development. For the long term, as long as spending remains moderate, the US economy will be on a much more sustainable path.
3. Reinvention and change are what the US is all about. The financial and real estate sectors got too fat in the 2000’s. They are shrinking rapidly, and our economy needs to find new drivers of growth and prosperity. That is not going to be easy, but it certainly helps that switching gears is something of a national specialty. We Americans are willing to move thousands of miles from home, to change careers, to strike out on our own, if that is what it takes to get by. This is far less true in most other countries in the developed world. This isn’t just because we are an adaptable lot; it has much to do with the inherent advantages of having the dollar as the world’s reserve currency.
4. The Government is on the case. Don’t laugh. The Treasury Department and the Federal Reserve and the White House and Congress really are all working to fix this mess. They are making lots of mistakes. They are doing some things too quickly and many things too slowly. A political climate increasingly hostile to bailouts is tying their hands. But the recession to the current crisis has been infinitely smarter and more forceful than that of the early years of the Great Depression.
These four points may all be exercises in finding silver linings in a really bad time, but I believe that faith will pull us through. Let’s not forget that it is exactly when the news is most discouraging and most gloomy that recoveries begin. Please do share your comments.
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