There is Good News for the Long Term with the Great Recession
The Great Recession of 2008-2010 in having a profound effect on the way we all live. Yes, there is much hardship, there is much pain, there is much loss, there is a sense of damage we all feel. That said, there are changes in the wind that point to profound long term benefits when we finally emerge into a new growth period in 2011.
First, as I predicted last fall “thrift would become the new extravagance, thrift will become the new cool”. This has clearly become the case. In recent months, the media is full of stories of how people are now enjoying the stuff they have and have capped the urge to constantly upgrade or buy more. Thrift shops are doing a booming business as are all forms of do it yourself activities such as changing your own oil or taking care of your own yard.
Last fall I wrote that the “third economic wave would collapse” meaning that the ever increasing percentage of consumer spending as a part of the GNP would abruptly stop, and it has. Last October the net savings rate of American’s was -0.5%; for the past few months it has been between 4.5-5%. People are saving money at a level not seen for 20 years.. In my first monthly newsletter last month, I wrote about how we have all been scarred by the events of the 4th quarter of last year. Those of us who were raised by parents that lived through the Great Depression know how that experience scarred them for life. Well, to a lesser degree we have all been scarred by last year’s events. When we do what we are supposed to do, buy real estate, invest in mutual funds and diversify portfolios and our net worth gets eviscerated we realize that the only thing we can control financially is what we spend or don’t spend.
In the past six months I have spoken and written that I believe this scarring will last a number of years if not a decade or more. When the economy comes back the consumer will not resume her free spending ways as has happened in the past. The recent wound is now becoming scar tissue that will last for years.
Second, as I wrote here in February, this Great Recession is actually green. We are buying less stuff and all the environmental consequences of that are positive. We have been driving fewer miles and buying less gasoline in the last nine months on a year to year basis. Both of these dynamics dramatically lower greenhouse gas emissions. Public transportation ridership has soared. In 2008 it was higher than any year since 1957, before the American love affair with the automobile fully blossomed. Use of public transportation is more energy efficient that automobile transportation.
There have been recent reports that traffic congestion is way down from a year ago. In the top 10 metropolitan areas with the most traffic congestion there has an average of around 20% drop. Congestion is defined as moving slower than speed of free-flowing traffic. LA has had a 24% drop in congestion from last year. NY is down 25%, Boston down 26% and Seattle 28%. This of course not only lessens green house gas emissions but makes the times you do drive more tolerable.
Yes this Great Recession is painful and has, and will continue to cause hardship and economic suffering. The economy will contract through the rest of 2009, and while there will be expansion in 2010, it will be minimal and we will still feel like we are in a recession. That means that all these new habits we are developing such as saving, making do, driving less and using public transportation will have time to become ever more embedded as a new way of life. We will focus on spending less on energy, on new stuff, making do with what we have.. We will have increased our acceptance to live within our means and will save at historically high rates.
We will further realize that this is a global recession and that we, humanity are all in this together. This will lead to a further realization that we are a truly global society with responsibility for all of us and the precious planet on which we live. This is all good news for the long term, something to keep in mind as we help each other through this incredibly rough economic time.