10 Things to be Happy About Despite the Depression.

In my last posting, I argued that the economic downturn that we were experiencing was not just your father’s recession. This contraction is more properly classified as a depression, although this classification does not necessarily imply that we are doomed to a 1930’s or even a Japanese type decade-long economic setback. It simply means that this will be a severe contraction and that the spending, taxing and regulatory choices of the Obama administration will have a profound effect on its duration and depth. Although we are relatively early in the game, I am not entirely encouraged by what I am seeing. But to dispel the notion that I am a reflexively gloomy whenever liberal Democrats are in charge, I decided to take a slightly different tack. My comments in this post are largely inspired by the most recent issue of Barron’s magazine. As soon as I got home with my newsstand issue last week, I opened it and frantically began to search for any article—any at all—that had the slightest bit of good news. Aside from the price of gold, not a single analyst had anything hopeful to say about the near term prospects of any asset class or for the economy as a whole. It was doubly depressing to think that my wedding ring and my fillings are now probably worth more than my 401(k). So after reading Barron’s and listening to the funereal message of our president, I thought it appropriate that somebody, somewhere needed to say something positive about living in this era, and I might as well be the one to take a stab at it.

Here is my top 10 list of things to be [at least moderately] happy about despite the depression:

• Getting from place to place is easier. Three years ago, taking my kids from home to school in the morning was a real hassle. My neighborhood was a frenzy of activity in the morning. It was like traveling 3 miles in a construction zone, getting stuck behind dump trucks, waste hauling trucks, and lumber trucks. Construction crews would halt traffic on side streets to haul in materials to build yet another McMansion. Since last summer, all this has gone away. Now, the morning trip to school is like a summer drive on a country highway. Similarly, the airports are now a breeze to navigate through. My family and I took a trip to New York in last December—normally a stressful, jam-packed adventure elbowing your way past bustling people with luggage and shopping bags full of Christmas gifts and businesspeople and lawyers scrambling to get year-end deals done. This year, we breezed in and out and I have to say it was a great deal more pleasant.
  
• Schadenfreude. OK, OK, I admit it. Some of these investment bankers, hedge fund managers and other financial pros that you knew weren’t any smarter than you were making millions, pounding their chests and proclaiming themselves to be wizards. Well, many are now half-wizards at best, and some, we learned, weren’t really wizards at all—just guys that got a little lucky and some were out and out frauds. I’m as staunchly capitalist as anyone, but there is something perversely gratifying to see some of these folks take off the tall pointy wizard hats and mow their own lawns, and to see the real frauds go to jail.
  
• We may be healthier in the long run. There has been a raft of recent research demonstrating that retirement isn’t really good for you—mentally or physically. People do better when they continue to work and are engaged in productive activities. We need a purpose in life and a routine. For many, retirement is a road to physical and mental deterioration. The deflation in our asset values means that we will have to work longer to make up the gap. The demographers are telling us that there will be a projected labor shortage in the coming years as baby boomers reach “normal” retirement age. Ultimately, baby boomers will work longer, and it will be to everyone’s benefit. It will ameliorate the labor shortage and extend their productive lives and overall it will be to everyone’s benefit.
  
• Better relationships. Shared misery creates a bond between people. I learned this when I played high school and college football. Going through training camp in the hot August sun with coaches yelling at you for 8 hours or more a day created a bond among us that, in some cases, lasts to this day. Today, the misery and pain of this depression has brought me closer to many of my friends and acquaintances. Nearly everyone I know has suffered some degree of pain and loss. Many have lost jobs, have had their assets severely impaired, and are experiencing a great deal of anxiety about the future. Going through that together (dark humor and alcohol helps) means that pretenses are dropped, more personal stories are shared, and our fears are talked about more openly. When your neighbor is doing very well and you’re not, it’s very painful. When we’re all suffering, we tend to draw closer. It’s human nature.
  
• Restoration of old fashioned values. The days when you could work at a job for two weeks and buy a house with no down payment are gone, as is the ability to refinancing the “equity” out of your house so you can buy big screen TV’s, Caribbean cruises and the like. We will go back to a time when newlyweds lived frugally for several years to scrape up a healthy down payment and get a mortgage they could really afford. We will be forced to budget and live more responsibly. When we move into higher lifestyle stations, we will do so the old fashioned way—by working, saving and investing, getting promotions and starting our own businesses and not simply on abnormally high increases in our home equity.
  
• Reordering capital flows. Our government created the conditions that enabled this catastrophe to occur. Through tax (mortgage deductions and other tax breaks) and regulatory policies (CRA and Freddie Mac) and by keeping interest rates too low for too long, Uncle Sam fathered the bubble. The government’s fetish with individual home ownership distorted the market and ushered in this cataclysm. We have now learned that there is a large segment of the population that SHOULD NOT own homes and should be renters instead. These individuals were in no way able to absorb the risks of asset ownership. Additionally, government incentives diverted too much capital into residential real estate, which is an unproductive asset. Once again, the people that the government purported to help have been among the most damaged in this crisis. They will lose their homes and have their credit histories damaged. But that is why the phrase, “I’m from the government and I’m here to help you” is such a ubiquitous joke. Hopefully when this all rebalances, we will have a healthier allocation of capital into productive assets and people that should be renters will stay renters.
  
• Birth of some wonderful businesses. I noticed in my business career that many, many companies had their origins in the period from 1980-82. Many were started by middle managers that were downsized from their employers. One in particular was fired by a large cosmetics company at a time when he had 5 children and a wife that didn’t work. For him, starting his own company was not just a matter of scratching an entrepreneurial itch. It was a matter of survival. Somehow, he survived and today has a very nicely profitable little company, and he is much better off than if he had remained with his old employer. Orbitz, HP, FedEx and CNN are just a few examples of companies that were born during recessions and this one won’t be different. There will be the brave few that will see this as a time of great opportunity and they will be rewarded for doing so.
  
• Reallocation of human capital. I know that it is painful, but there were a lot of people with great quantitative skill employed by Wall Street and creating no value for our society. Lured by supersized salaries, these people were employed by Bear Stearns, Lehman Brothers and other similar organizations, putting together the subprime securitizations that were at the root of this mess. Those jobs are gone for good. Thousands of these people and others like them will have to find something else to do. Hopefully, some of them will decide that they need to teach. Wouldn’t it be great for our educational system if some of these talented individuals found their way into the classroom? Many will be forced to take steps they should have taken anyway. On a recent trip, I struck up a conversation on the airplane with a middle aged African American woman. She was just returning from a successful job interview for a job as an information technologist with a university in Arkansas. She had been laid off by a bank from her position as a check processing supervisor. The layoff forced her to look for a job—which she found in short order. She will be taking a position that is more commensurate with her skills (she had an IT degree), has better pay, is more interesting, and is in a warmer place to boot. There will be many like her that will be redirected to a better life.
  
• Perhaps a cleaner environment. China’s environmental problems are overwhelming. Ours are difficult even though we have been working at it more or less for a couple of decades. This pause in economic growth may give us some breathing room to develop solutions to some of those problems. For a little while, there will be fewer planes in the air, cars and trucks on the highway, and factories will be spewing fewer pollutants (although that will be offset somewhat by China keeping some inefficient factories going). It may be beneficial to slow things down while we work on technologies to solve these problems.
  
• Finally, fewer shark attacks. CNN ran a little story last week that noted that since the recession started, researchers have seen a sharp drop in shark attacks on humans. The researchers believe that it is a direct result of fewer people vacationing and being in the water. I wonder also whether releasing stress hormones additionally makes us less tasty. While being consumed by a bear market is no fun, being eaten by a shark is worse.

On balance I would not argue that this is a good tradeoff. The depression will inflict a great deal of misery and leave permanent scars, and will be particularly harmful to many baby boomers. But there will be some salutary side effects to soften the blow, and we should keep them in mind and enjoy them. I am particularly pleased that a number of my friendships have been enhanced over the last 6 months. Just the other day, a partner in a large law firm asked me how long I thought this would last and if I thought we would ever recoup our losses in the market. “I think guys like you and me are pretty much screwed in the long run,” I said, patting him on the shoulder, “Not only have we taken current losses, but Big Brother now thinks we haven’t paid nearly enough. But I’m still your friend and I still luv ya’.”