Maybe I’m cranky. And it is a heated political season. But an economic reality check is needed. There’s a huge disconnect between the noteworthy upbeat economic data vs. dour sentiment so often heard around the region.
I’m not rooting for a recession, but here are six things we could learn from another downturn. Well, unless we want to do the hard work and to go the history books and learn – without living through another reversal for the business climate.
1. GIVE PERSPECTIVE
I can see a time – maybe in midrecession 2018 or 2019 – when somebody will reminisce about the good old days.
You know, “Remember 2015 or 2016 …” I may have to be restrained from harming the person.
It’s been seven years since the Great Recession technically ended. The recovery in and around Southern California has not been perfect or even, but it’s been a noteworthy advance, especially considering the depth of the last downturn.
Times, relatively, are pretty good. Roads are jammed for a reason. Jobs are plentiful even if the pay isn’t always great. And home values have largely recovered. Please remember this strength.
Do we need another economic downturn to recall what real pain feels like?
2. PROVIDE SCALE
We will have another economic downturn. It’s just a fact that the business climate has its ups and downs, and we’re due for a down.
But let’s remember a slowdown does not have to be an economic catastrophe.
In the past quarter-century, this region has seen a prolonged malaise (the early 1990s), a modest dip (after the turn of the century, the post dot-com bust and 9/11 attacks), and a huge disaster (Great Recession, technically 2007 to 2009.)
All hurt many people and businesses. Each happened for different reasons. Each left varied scars on the local business landscape.
But considering the relatively modest oomph of the current economic expansion and recovery marked by limited risk-taking, the next recession could be a mild one.
3. TRUE SLOW GROWTH
You know things are too good when people start complaining about how “busy” Orange County has become.
We again see the cyclical revival of local slow-growth movements in which those who benefited from the upswing start campaigning to shut the doors to further economic expansion.
The common target is new housing, which is desperately needed countywide but is unfairly tarred as the traffic problem. The truth is that local employers hire more people than can afford to live here, so new “affordable” housing would actually lower congestion.
Debate aside, there’s only one thing that quickly empties freeways: a job-killing recession! So, slow-growth fans, be careful what you wish for.
4. REINFORCE DATA
I know some of you think I’m crazy to think times are good.
It’s true not everyone has benefited from the recovery. And other folks think there’s a conspiracy among all data collectors – government, industry groups, private analysts and pundits – to cover up their view of a gloomy reality.
When the downturn arrives, we will see data that show slowing corporate and consumer activity. Unemployment will rise. So will bankruptcies and defaults. Maybe California will stop being the nation’s largest jobs creator.
The widely reported trend lines that rise today will drop when business sours. I will note the dip with the same vigor as today’s upward trends.
P.S. to my revival-denial friends: When the downturn comes, please don’t try to prove your point by quoting the same economic data you currently think are wrong or misleading or even cooked!
5. BUY LOW!
Who wishes they bought property or stocks right after the recession?
Downturns create opportunity for those who can see it.
Maybe certain assets have gotten a little too pricey in this recovery. (I’ll suggest commercial real estate.) One good thing about recessions is their cleansing nature: They often punish what’s become economically illogical.
Unfortunately, human nature makes it tough to want risky assets after markets tumble. Emotions make it especially tricky to decipher which bets are no longer viable vs. which investments have simply been heavily discounted.
I wish we didn’t need another downturn to re-teach “Buy low, sell high” … but, sadly, that’s what it takes.
6. FIX EXCESS
When people forget business reality, recessions begin.
Severe risk-taking or overspending is often the last stage of an upswing as money seems too easy to get. Companies do it. Consumers, too!
When those bets no longer pay off, institutions and individuals pull back spending. The growth ends and the contraction beings.
What worries me today? The fancy food concepts that seem hot these days. I halfway understand pricey wine, but fancy micro-brewery beers or custom-mixed cocktails that can run $15 or more? Really?
And those beverages wash down your $12 (tiny) burger made with all-natural/grass-fed/free-range/humanely killed/hand-ground/brand-name protein with a (small) side of organic/locally sourced/hand-cut/fried-in-gourmet-oils vegetables.
Oh, yeah. Did I mention $100 tomahawk steaks?
But if stuffing tummies on overpriced dinners is this upswing’s worst offense, perhaps the reversal won’t hurt the wallet too much.