Marketplace of Ideas Blog

Originally printed in Marketplace Nov. 4, 2008

In my 20 years in journalism, I have seen the kind of uneasiness throughout our country right now on two other occasions, neither case involving a presidential election.

Both of them involved wars — the first around the buildup to Operation Desert Storm in late 1990 and early 1991, and the other on Sept. 11, 2001.

This is not like either of those times, but it includes one similar feeling: you don’t know when our current problems — frozen credit, shrinking investments, decreasing business profitability, rising unemployment and other problems — will improve.

Our economy will improve. As numerous economists have been quoted in the online Marketplace of Ideas, what we are experiencing now is nowhere near as bad as the Great Depression; our future does not include 25 percent unemployment or precipitous drops in Gross Domestic Product. That’s not exactly cheery news, but this country has experienced numerous financial-related panics (in fact, we’ve had 32 recessions since 1854, and 11 recessions since 1945) and emerged eventually stronger. The 1987 stock market crash was a 23-percent drop in one day, similar to what we experienced in early October. By one year later, the stock market had made up all of its losses, and the economy didn’t drop into recession.

There’s no good time for rash moves, of course, but now is especially not that time. The people who lost real money in the stock market are those who got out after the big drops; otherwise, all that’s been lost is an account balance, and those who engage in dollar cost averaging and, more importantly, are still buying will be in better shape when stock prices recover. The people who avoided too-good-to-be-true investments will be OK, though it may take a while.

The people who resist rash moves with their businesses will similarly be in a better situation. Now may be a little late to do the cost management (see Marketplace MBA, page 20) that should have been done from the beginning, but better late than never, as long as costs are cut in the right places. Cutting research and development spending or, as you read in this year’s Marketplace How-To Book, cutting marketing spending is a good way to ensure that when the economy improves, it won’t improve for you, since, in the case of marketing, your potential new customers will have had little idea that you still exist. (But don’t take our word for it; take the word of Procter & Gamble or Unilever, which have always increased marketing spending in downturns.) R&D is only important if you plan to have improved products from what you currently offer.

If what comes out of this is a realization that living beyond our means, whether personally, in business or in government, is something to be avoided, that will be a positive step. Houses should be places to live that usually improve in value; they should not be considered automated teller machines made of wood. If an investment professional can’t explain why a proposed investment can make money, then using the college fund on it is probably a bad idea. Using tax revenues for something other than their intended purpose, or just throwing promises of spending at voters for the purpose of getting elected or reelected, is something voters should reject.

In fact, much of what we’re experiencing now could have been avoided with more common sense than evidently was used. This particular economic problem has plenty of places to point fingers, but at some point someone should have asked, for instance, why subprime mortgages — mortgages for homeowners who were statistically more likely to default on their mortgages — were going to be vastly profitable and risk-free.

This should push businesses to push themselves in innovation. As Tom Saler pointed out in the Milwaukee Journal Sentinel Oct. 19, the next president — or, more accurately, his economic advisers — will have to figure out how to get our economy to grow without the government’s and individuals’ going into unsustainable debt to do so. The way to do that is to create products and services that are as efficient for you and as value-added for your customers as possible.

This is an obvious thing to say, but the rules that apply in any less-than-optimum economic situation obviously apply here — focus on your business, and how your customers and vendors are doing, and plan and act accordingly.