Recession Hardship Is Painful, But Can Be Beneficial

Recessions are painful, but they also are harbingers of better things to come. A recession happens when an economy is suddenly forced to change the way it operates—for example, to shift resources from overbuilt or overextended sectors to sectors that had been neglected. Recessions force changes in relative prices, so that unproductive resources can become productive again, and they force people to figure out new and more creative ways to do things to do in order to survive. Hardship is painful, but it can be beneficial.

Here's what the co-owner of a large design/construction firm in the Pomona Valley specializing in home remodeling told me the other day (he's also the one who told me a month ago that he had just re-hired two architects that he laid off last year), in response to my sending him the above chart which suggests that the third quarter uptick in residential construction activity has probably ended the deepest recession ever to hit the industry:

No wonder I've felt a bit nauseous and dizzy the last 18 months. But as we discussed, I've been asking around and everyone I talk to says that they have had a huge uptick in work flowing in - from my roofer today to other remodeling companies all over the country. My friend in Columbus MO said he had the best sales month ever this last month. I'm sure hoping this is a solid leading indicator!

Friday night my wife and I went to a late dinner at a nice local restaurant. I was surprised to see that the menu now has a special "Light Meals" option available from 5 pm to 6 pm, and from 9 pm to 10:30 pm. For $20 you get a choice of appetizer and a choice from 10 main courses, served in smaller-than-normal portion sizes. At 9:30 pm the restaurant was almost full, something we haven't seen for a long time, and the waiter was simply delighted. This solves several problems for us: not wanting to eat large portions at night, not wanting to share main courses, not wanting to spend extravagantly for a last-minute decision to go out for a bite to eat, and not wanting to go to a restaurant after 9 pm because they are emptying out. It also brings more business to the restaurant, allowing it to remain busy for more hours every day.

I imagine there are all sorts of anecdotes such as these happening around the country, in many lines of business. All this activity—change, if you will—is going on behind the scenes, and it is making the economy more productive. And it is all happening without any help from government stimulus programs. Indeed, I continue to believe that the economic recovery will proceed

in spite of

government stimulus programs.

Comments

[Tony Petroski:]

The Beach pundit has it right.

From the article:

"...in response to my sending him the above chart which suggests that the third quarter uptick in residential construction activity..."

I know you're an optimist, keep going, but I have a magnifying glass and I had a difficult time finding the uptick in your chart.

Even in California, things are looking up.

Nov 02 08:48 AM

[Valley Boy:]

The recovery can proceed at a decent rate in spite of the government stimulus programs in some areas but not in other areas. The areas which would be most self-sufficient and ordinarily prosperous would be the areas most likely to deal with the stimulus programs as only a small factor in the ongoing economic progress.
I can believe certain areas of Southern California are rebounding from the current recession. Those areas would be the same places which came through the severe 1982 recession with hardly a scratch. These areas would be Southern Orange County including Calafia Beach, Northern San Diego County, the Palm Desert area of Coachella Valley, the Hollywood Hills including Beverly Hills, the Cucamonga area and the Pasadena area.

Nov 02 10:24 AM

[bigbear4511:]

Ya i have learnt how to live out of a tent in the city, surviving on food stamps. You get used to Mac and Cheese after a while. I just live for the day when I can afford some ketchup. Good times ahead. I used to have a good job in a bank, who new that I could survive on so little. Man if i ever get a house again I should be able to pay it off in no time with my new cost cutting methods. Since I am only 70 years old I have lots of time to get back to the workforce and contribute to the country that has never turned its back on me. Got to run, the coffee shop people hate it when i used their computer. The say I smell to much but I think they are just saying that. I mean I had a bath just last week. Sunny times ahead!!!

Nov 02 03:35 PM

[Gregman2:]

The pain of hemorrhoids causes some to switch to a high fiber diet as well. Was that your point?

Nov 03 07:47 PM

[Al-USA:]

The working/middle class has seen no real increase in wages, after inflation, for about the last 30 years. Now, at what point is 30 years of hardship turn from painful to beneficial?

Of course, the 30 year hardship period also coincided with 30 boom years for capital and the top 5%, especially the top 1% of income earners, but, for the bottom 95%, well, maybe they will have to endure another couple generations to see the benefit of it all?

Nov 04 08:15 PM