9 Reasons This Recession Will Be Good

It will be painful, but a downturn will help refresh the economy

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Recessions are lousy - as Americans have learned about 10 times over the last 50 years. But they’re also necessary. Prosperity tends to produce a lot of economic sediment, like unneeded purchases and excessive debt, that coagulates like gunk in a pipe. A good recession flushes it out. It also washes away things we need, like jobs and businesses. But on the whole, the “troughs” in the business cycle - recessions - help refresh the economy and keep it healthy.

There will be plenty of pain in 2009, as employers cut more jobs, the unemployment rate rises toward 8 percent or higher, and shellshocked consumers curtail spending even more. But beneath the dismal headlines will be some hopeful trends. Here are some of them:

More saving. If you haven’t heard by now, the savings rate in America is alarmingly low - barely above zero. That forces the nation as a whole to borrow from other countries - like China, where the savings rate is close to 50 percent - to finance everything from the government debt that will fund the Obama stimulus package to mortgages that help young couples buy their first home. Profligate spending also leaves many consumers with little cushion for rough times. Like now.

For once, anxious Americans appear to be putting more of their paycheck in the bank. The savings rate has inched up recently, no doubt because Americans are worried about their jobs and incomes. That’s bad news for the economy today, since more consumption would boost retailers and other companies. But overspending is no way to crawl back to prosperity. Saving is. It means lower household debt and more money available for smart investments that will return way more benefits down the road than a new couch. If we can keep socking away a few bucks, that is.

[See 5 risky assumptions for 2009.]

Smarter spending. Most middle-class Americans could find ways to cut their spending by 10 percent without downgrading their lifestyles all that much. That kind of cutback would be a disaster for stores, but it ultimately benefits consumers because frugal spending forces retailers to offer the best possible products and add as much value as possible. Banks are helping – in a perverse way. With tougher lending standards for car and home loans, and lower limits on credit cards, consumers have to be more careful about how they spend their money. They should be.

[See how the smart money turned dumb in 2008.]

Great buying opportunities. Nearly everything is cheaper than it was a year or two ago – electronics, gasoline, cars, homes, and especially stocks. That’s no excuse for impulse shopping. But it’s a great chance to buy things you might need eventually, like a new computer server for your business, or a minivan for your family. Talk about “deflation” might leave the impression that we can now take low prices for granted. Don’t count on it. Once the economy and the housing market bottom out, spending will pick up, driving prices back up. And a flood of new money from the Federal Reserve, meant to ease credit today, could kick off an inflationary period in the future, with little warning. That could make 2009 a golden year for bargain shopping, especially for things you’ll keep for awhile.

Better lending. A couple years ago, you may have wondered how your neighbor could afford that Lexus or luxury vacation to Europe. Now you know: Banks lent to practically anybody when offering mortgages and home-equity loans, assuming real estate values would skyrocket forever, effectively creating money. Of course, it didn’t go on forever. Bad lending underwrote the housing bust, which now threatens the entire economy. There won’t be another reckless lending orgy for a decade or two, and until then, we’ll have to buy what we can afford. It’ll be a good lesson to re-learn.

[See why you and I deserve a personal bailout.]

Less swagger. Even though it was an era of excess, there were still plenty of Americans who spent cautiously and stayed within their limits. They might have felt foolish while those around them showed off their new kitchens and gargantuan SUVs. But the frugal are finishing first. They’re the ones able to get loans these days, to take advantage of low rates on mortgages and financing deals on cars. And they’re less likely to boast about it - relief for everybody else.

Tougher consumers. Let’s face it, we’ve had it easy over the last decade. Individuals may suffer from unfortunate circumstances or bad decisions, but as a whole, America’s consumer class hasn’t really known privation or sacrifice in a long time. Sorry if it sounds like a lecture from your father, but hard times still generate ingenuity and fresh ways to solve problems. Overcoming adversity is an American strength. It wouldn’t hurt to rediscover that.

[See the 10 worst assumptions of 2008.]

Easier traffic. Just as air travel was becoming about as miserable as it could get, travelers began to cut back, leaving smaller crowds at airports and a few more empty seats on planes. Americans are driving less, too, easing congestion. Fewer driver miles are also helping drive gas prices down to levels of four years ago - a rare bright spot for consumers.

More innovation. Booming layoffs are a nationwide bummer, but some of the suddenly unemployed will go into business for themselves, and form startups that will grow into thriving companies someday. With big employers outsourcing as much as they can and cutting expenses everywhere, there’s also more room for entrepreneurs to be the ones to come up with creative new ways to fill niches and reach customers. Sure, with money scarce and start-up loans hard to get, it might seem like a dreadful time to start a business. At least that’s what your potential competitors think.

The nearing end. Not the end of the world – the end of the recession. We’re in the middle of it now, and the economy will get worse before it gets better. But in a downturn the economy starts to improve, little by little, before a lot of people realize it. The unemployment rate, for instance, usually doesn’t start to improve until the economy is already growing again. So new opportunities will start to materialize while the official news is still bad. Those who give up and simply wait for something better to come along could end up waiting a long time. But those determined to make their life better will get their chance. We still do that in America.