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October 17, 2008

Can you profit from a recession?

Quote of the Day:
“We have nothing to fear but fear itself.”
— Franklin Delano Roosevelt

Subject: Can you profit from a recession?

The media has been busy doing what the media does — selling drama and sowing fear. This is what they did after 9-11, and leading up to Iraq. Look where that got us.

Is the current fear different . . . justified?

Was it justified leading up to Iraq, or in the previous economic downturns of the last thirty years?

We think the answer is no. Cries of crisis and doom are often raised but rarely realized. The crash of ’87, the S&L debacle, the dot com bust, the post 9-11 hysteria — all of them came and went with only tremors in the upward climb of our quality of life.

The track record for predictions of doomsday is by now so bad that prudent minds should develop a natural bias against such predictions.

But aren’t the current events larger, and therefore more dangerous, than previous such events? The answer appears to be no. If you adjust for inflation and the current size of our economy, the current upheaval just doesn’t seem to rate.

Alan Reynolds, at the Cato Institute, provides a good corrective, concluding that “An economic crisis implies a deep and prolonged drop in real output and employment, not just another routine recession. To describe current conditions as a worse economic crisis than 1980-82 is fanciful nonsense.”

And David Boaz provides a startling graph of the S&P 500 from 1980 through today. The picture its paints is clear, and more dramatic than the media’s relentless fear-mongering.

Despite all the destructive policies our government has created to cause repeated waves of trouble, overall social wealth has grown and grown and grown. There’s a simple reason for this. The productive power of the human mind, operating even in our only partially free market, is so vast that it still manages to outstrip the destructive capacity of government meddling.

So . . .

Here at Downsize DC we still want to forestall a government-caused doomsday, but we’re really much, much more focused on realizing the full productive potential that downsizing government would unleash.

We are growing. We’ve added 416 NET new DC Downsizers in the last 30 days. Perhaps we would grow faster, in the same way that CNBC’s ratings are now growing — that is, selling drama and peddling fear. But we’re aiming for something different and better. We want to see the world as it really is, undistorted by unnecessary fear and panic. 

And so, we use a line from FDR as our quote of the day for perhaps the only time ever, because it may be the only time ever that FDR got something right. Most of what happened prior to and during the Great Depression was a result of government meddling. But much of what happened was also due to fear, people rushing to take their money out of the bank, and thereby causing the very thing they feared.

As a corrective to this fear, we make a startling claim . . .

Most people will profit from the current slow-down, and also from any recession that may follow.

How can this possible? It is possible because most of the pain felt in economic corrections happens at the margin, hurting some people badly, but making things better for most people, overall. Think about it . . .

Businesses will suffer lower profits, but most of them will re-think and re-engineer their operations, emerging better and stronger than they were before, while those businesses that fail will see their assets moved to more productive firms, paving the way for greater societal wealth in the future.

Those who are close to retirement, and stayed in the stock market too long, may have to delay their retirement for a year or two. But if they refuse to panic by selling out now, they too will likely emerge better than before.

The greatest pain will be felt by those who lose their jobs. This pain will only impact, even if we have a severe recession, about one out of ten Americans. This is too much pain suffered by too many people, but the fact remains that . . .

Roughly 70% to 90% of all Americans will suffer NO economic pain at all. Instead, they will actually BENEFIT from the correction, because the cost of living will drop, and new investment opportunities will be available at bargain prices.

Energy and food and consumer goods are going to get cheaper. And, as Warren Buffet is proclaiming, now is the time to buy stocks. The conditions are in place for many new fortunes, great and small, to be made.

It bears repeating — the vast majority of people will do better during a down-turn than they did before. And the future economy will be better than the past economy, just as it has always been, and just as it will always be — because of the creative capacity of the human mind.

Does this mean we should invite recession? Of course not. It would be far better to have a steady relentless march upward, with no major corrections, and little pain felt, even at the margins. But there is one, and only one way we know of to foster this outcome . . .

We must Downsize DC, because Big Government, and its arrogant, centralized meddling is, has been, and will be, the greatest cause of the need for economic downturns and corrections. Indeed, Big Government is already sowing the seeds of a yet another economic correction to come. This is why we need your help.

Some DC Downsizers are among those at the margin who are being hurt by the current correction. We have lost some monthly pledgers because of this, and overall contributions are down slightly. But some DC Downsizers are secure, and DC Downsizers are a wise bunch, so we know that some of you have already used your knowledge of economics and the market to make huge profits from the current correction.

We need the help of those who are doing well, to make up for those who are not.

So today we must focus on our finances. Can you help to keep us going and growing by making a contribution, or starting a monthly pledge? If so, we really need your help. You can contribute here.

Thank you for being a part of the growing Downsize DC army.

Jim Babka
President, Inc.

P.S. Most Friday afternoons Jim Babka is on Straight Talk with Jerry Hughes on the Accent Radio Network. Show details are available at our blog.

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