No Pain No Gain

What I am about to write may come off as insensitive to those readers who are feeling the pain of the current economic situation most acutely, those who have seen their stock portfolios or 401K balances plummet, especially those who have lost or fear losing their jobs as the stock market continues to plummet and unemployment is on the rise. It is not my intention to seem uncaring or cold to those in trouble, but my premise is that the short term pain that we are feeling today could actually turn out to pay off in the long run. As a champion of the middle and working class, it does pain me to see people suffering, and like many it also angers me to see the elites continue to benefit with golden parachutes and pork barrel projects being handed out in this time of anxiety and suffering. So when I say that there can be no gains without some pain, it is not out of anything other than a sense, and a hope, that what we are dealing with, and are about to go through will make us a stronger and more equitable society once we make it through the other side.

So how exactly is our current meltdown a good thing you ask? First off, our economy is in need of a serious diet and workout regimen. We have built up so many layers upon layers of excess over the last couple decades, through both Republican and Democratic administrations and Congresses, that we are like a middle-aged guy who wakes up one morning and realizes that not only can he not button his pants anymore, but that he can’t even see where the buttons are supposed to go. We can continue to ignore the reality of where we are with bailouts and tax refunds, the economic equivalent of going to sweatpants with drawstrings, or we can get serious about shedding the excess weight in hopes of getting back to the glory days of our youth. Of course there will be pain in the short term, changing habits is never easy and requires a good deal of sacrifice. Companies will be downsizing, jobs will be lost, and entire industries will either need to be seriously restructured or in some cases eliminated all together. But the end result can be a leaner and meaner economy and a return to jobs that actually produce something of value to society as a whole, not to mention jobs that are much more secure than what we have now as people would have skills that are marketable and transferable and employees would be less at the mercy of their particular employer.

Secondly, the current downturn can actually have a positive effect on the markets that impact the middle and working classes the most, namely the stock market and housing market for those of us fortunate enough to have a stake in them, and the market for basic necessities such as food and energy for all consumers, which is already starting to moderate after shooting up at alarming rates not too long ago.

The stock market has been a bubble waiting to burst, and with stock prices coming down and things like traditional price to earnings ratios falling in line with historical levels, stocks will be not only more affordable but their values will actually reflect reality more so than they have in recent years. The housing market has taken a nose dive, making it difficult for those who bought within the last few years, especially those unfortunate enough to buy at the peak of the bubble, to sell their houses. This has brought about a stagnancy in the market, which combined with excess supply thanks in part to what started out as a subprime mortgage crisis but quickly expanded to include all types of mortgages, has brought about a downward spiral in prices. But again, there are always two sides to markets, and at some point the decrease in prices, along with a corresponding decrease in interest rates, will make housing more affordable for the average worker. Assuming that there are any lenders left with capital to lend, this activity will spur prices to hit a price floor, and will eventually allow sellers to start to see an increase in the value of their most valuable investments, albeit one that is, like stock valuations, more in line with reality and the actual worth of what they are selling. We all knew that the rapid increase in prices wasn’t based on a real increase in the value of the assets, but as with most things, we don’t tend to question the system when it is working in our favor, we just go with the flow and often suspend our perceptions of reality. Regular people are just as guilty of that as the greedy money lenders that made huge profits from the whole situation while they could, and many of the middle class either took out gimmicky loans or took on more than they could reasonably expect to afford given their finances. Not to mention, they went out and bought expensive vehicles and other material items, and put most of the bill on the charge card in an era of easy credit and low interest rates. Those days are gone, and as Springsteen would croon, they ain’t comin’ back, and in the long run we will all be better off for it.

Last, but certainly not least is the impetus that the current crises can provide for the peasants to finally wake up and smell the coffee, or in the case of many, the four dollar lattes and hot chocolates we love so dearly. The combination of irresponsible and ineffective government bailouts, incredibly brazen pork barrel spending added on top of the recent bailout bill, and the fact that heads of failing corporations responsible in large part for the mess we are in are nonetheless coming out smelling like roses is enough to provide a shock to the senses, a jolt to the workers of this land to say enough is enough. Historically, real change only comes about when conditions get bad enough to overcome the innate forces of inertia that apply to societies at rest, but once that society is moved to act, the irresistible force can often bring about meaningful reform. The story is yet to be written, and many variables remain at play, as this doesn’t seem to be a situation that is likely to resolve itself anytime soon, and most likely things will get a good deal worse before they get better. The hope is that the pain we are feeling now will not be fatal to our economy or to our psyche, and that we will come out of this a stronger, leaner, more equitable and just society than we have let ourselves become.