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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Rethinking the Recession

by Ben Stein

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Posted on Thursday, January 17, 2008, 12:00AM

Are we in a recession? No one knows. Indeed, it's literally impossible to know.

A recession is six consecutive months of negative economic growth. At most, December 2007 would be our first month, so we wouldn't know until sometime in June 2008 if, by the end of May 2008, we'd been in a decline for six straight months. So no matter what anyone tells you, we can't know if we're in a recession yet.

Mea Culpa

The December retail sales figures were poor. Obviously, housing is weak. Autos look to be softening (good time to buy a Cadillac). Even most commodities are off their peak.

More important than any of these to us economists, however, are two factors. First, because of repeatedly being stung by losses in real estate lending, lenders are reluctant to lend, which is causing a slowdown in economic activity. Second, money supply growth has been sluggish for the last several months. This is often a signal of a weakening economy.

I want to be honest here (and everywhere): This slowdown is happening faster and harder than I thought it would. I was too optimistic. My optimism was based on a belief that the Federal Reserve would act more aggressively than it has in fighting the slowdown. It didn't, and we're paying the price.

Let's hope that Ben Bernanke, the chair of the Federal Reserve Board, has learned his lesson. Hopefully, he'll now plunge in with both feet to get a lot of liquidity into the system, and reassure lenders that he'll backstop them and not let them fail. He's now perceived as weak, and he'll have to act aggressively to get the ball rolling again. But he can do it.

Retro Recessions

For now, however, assume that he's doing too little too late, and that we'll have a recession. Here, then, are a few salient facts about postwar recessions, which I've discussed before.

There have been 10 recessions in the last 63 years. The average length of these downturns has been about 10 months. The average decline in economic activity from peak to trough was about 2.5 percent. No decline has been worse than about 3.7 percent.

In the past 25 years, there have only been 2 recessions, which is an extremely good record. The two recessions -- in the early 1990s and the 2000-2001 correction -- have been extremely brief. The really severe recessions of the postwar era have been engineered by the Fed to fight inflation -- in the early 1970s and early '80s.

When the Fed is fighting to promote expansion and not to rein it in, recessions tend to be brief. Real consumption doesn't fall for more than a few months in such cycles. It would be almost unheard of for there to be a year-on-year fall in retail sales from 2007-2008 if the Fed is actively liquefying the economy.

Unemployment always rises in recessions. The degree of the rise is usually modest, generally only about 2 percentage points, although some -- like the one engineered by the Fed in the early Reagan years -- have gone as high as 4 points. The average length of involuntary unemployment during recessions is about six weeks.

Slacker Overboard

There is some good news in here.

Even in a recession, more than 90 percent of workers who want to work will be employed. Even in a recession, most businesses will make a profit. Even in a recession in this era, more than 10 million men and women will need cars and trucks. Many millions will need new homes. Tens of millions will need retirement investment products and life insurance. In the United States, even in a recession, there are plenty of people with money to spend.

Those who tend to their work, who get to the office or showroom or shop early, stay late, work hard, stay on the phones dialing for deals (as my pal, Barron Thomas, puts it), will make money. Those who stay sharp and make a point of befriending their clients will make money. Yes, some extra effort will be needed, but it'll pay off. There's still money to be made, even when the economy itself has slowed down.

It's the guy or gal who puts in extra effort who stays ahead and even prospers when the economy is in a slowdown. The easygoing, laid-back time-servers get tossed overboard.

Stay Hungry (Not Literally)

There's another key truth about recessions: They always end, and the economy always goes on to a new plateau. It may take a while, but the stock market always moves on to a new high.

So stay hungry. Work harder. Dig deeper. Keep investing in broad indexes. You'll come out all right on the other side.

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338 Comments

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  • Dave - Thursday, February 28, 2008, 12:22PM ET  Report Abuse

    • Overall: 4/5

    Thank You, Ben Stien. You ROCK!

  • David C - Friday, February 8, 2008, 5:06PM ET  Report Abuse

    • Overall: 2/5

    "Those who tend to their work, who get to the office or showroom or shop early, stay late, work hard, stay on the phones dialing for deals (as my pal, Barron Thomas, puts it), will make money. Those who stay sharp and make a point of befriending their clients will make money. Yes, some extra effort will be needed, but it'll pay off. There's still money to be made, even when the economy itself has slowed down." Of course it would be nice if only the slackers got laid off when their company decides to let go of 10% of the workforce or close a plant down so they can make their shareholders. Sorry Ben, but I've known plenty of hard working individuals, and been one myself who has ended up out of work through no fault of my own. When it happens during a recession, good luck finding a new job to keep making money.

  • RhondaW - Thursday, January 31, 2008, 12:05PM ET  Report Abuse

    • Overall: 4/5

    Ben has an extraordinary knack for putting every situation into the right perspective. Maybe this is the beginning of a recession? This is what recessions are like. Here is how you can make it through a recession. That's why I read every article he writes. Thanks, Ben!

  • Yahoo! Finance User - Wednesday, January 30, 2008, 12:57PM ET  Report Abuse

    • Overall: 2/5

    Ben, 1) The fed follows the 3 month treasury issue. We are more than a point behind this. The Fed follows the bond market. It never leads. 2) randomness: you can't use retro recessions because there is not enough data. You need at least 200 samples to have any significance. 3) Don't get suckered into buying gold and silver. Why did 3 high level insiders at Barrick Gold Corp sell all of their stock options in the last 3 weeks? And why is this info not available at Yahoo finance? http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/01/15/barrick-gold-executives-exercise-options-and-sell-insiders.aspx.

  • Ramniklal P - Tuesday, January 29, 2008, 12:57PM ET  Report Abuse

    • Overall: 5/5

    It has very important information about the world # 1 country--USA.Though it seems recessions in America,but after reading this BEST ARTICLE.... Country is most powerful financially....Congratulations to Most Respected Writer... BEN STEIN R.M.Parekh from INDIA

  • Yahoo! Finance User - Tuesday, January 29, 2008, 9:00AM ET  Report Abuse

    • Overall: 1/5

    Way to go, Ben. Finally, after months, you admit that there *might* be a recession. Why not jsut keep pumping for your rich friends, nobody takes anything you say seeriously! Keep being "Optimistic"

  • Pearl - Tuesday, January 29, 2008, 7:57AM ET  Report Abuse

    • Overall: 5/5

    I agree with Ben and plan to cherry pick the stocks I wanted to own and could not afford before. So, in the next few years I plan to increase my net worth considerably by buying stocks and putting off some other things I wanted to do.

  • Jonathan - Saturday, January 26, 2008, 6:29PM ET  Report Abuse

    • Overall: 1/5

    Absolute useless garbage from a big business man who understands nothing of the world of small business or the foundations of this county. Go back to making commercials

  • Michael - Friday, January 25, 2008, 3:34AM ET  Report Abuse

    • Overall: 5/5

    Good advice. I like when he talks about hard work. A lot of the get rich guys don't talk about that. They talk about how stupid you are for working for your money. Stein at least says you have to work for your money.

  • Steve - Thursday, January 24, 2008, 1:26PM ET  Report Abuse

    • Overall: 4/5

    At least he included a mea culpa about his views on the economy. He GROSSLY underestimated the impact of the housing bubble. But market optimism for LT investors is still an accurate position. Always a good column.

  • ron - Thursday, January 24, 2008, 1:24PM ET  Report Abuse

    • Overall: 3/5

    As a reminder that the economy won't be at a stand-still if there's a recession, Ben says, "10 million men and women will need cars and trucks." Interesting considering that some people think the auto industry's gonna be the next subprime (http://www.contrarianprofits.com/drupal-5.3/node/316). I guess people still need to drive though.

  • Yahoo! Finance User - Thursday, January 24, 2008, 8:52AM ET  Report Abuse

    • Overall: 5/5

    The always-terrified liberals are shrieking in horror again while Ben tells it lite it is. We - yes - ALL OF US - have it very easy. Most of us don't know what it's like to have to work hard for a living. We can all sit on our fat asses and complain on forums about how bad things are - while still owning five TVs, three cars, a house with a yard, etc. Now if we only had Hillary/Obama/Edwards to get us the rest of the way towards Socialism/Communism, then we'd start to learn what hardship is like.

  • happy - Wednesday, January 23, 2008, 8:13PM ET  Report Abuse

    • Overall: 5/5

    Ben Stein for President

  • peeweea - Wednesday, January 23, 2008, 3:19PM ET  Report Abuse

    • Overall: 5/5

    A smart econimist is one that will admit he does not know what is going to happen.Where were all the critics of Fed policy(too low ,too long) when we needed them to speak up? They were making money with all that foolish too low, too long interest. Can't have it both ways boys and girls. Revisit econ 101. I have not met a person that was holding high yield paper that has a bad thing to say about the Jimmy Carter high interest rates of the 70s. Imagine that! Self interest wins again. Brilliant article Ben.

  • Jack Suede - Wednesday, January 23, 2008, 1:18PM ET  Report Abuse

    • Overall: 5/5

    I don't think he's either a moron or a liar. I think he's an economist, which is a profession sort of like weatherman, except without the Doppler 5000 radar. As this article underscores, economists look at historical data and make informed predictions. Much like your local weatherman, they are usually in the ballpark, but sometimes miss the mark by a little or a lot.

  • JOel - Wednesday, January 23, 2008, 1:04PM ET  Report Abuse

    • Overall: 2/5

    The recession for my family started seven years ago. It would be terrifying to see the CPI and inflation numbers if they were not seasonaly adjusted! The economy needs to add another market. A market that reflects how the poor working slob is doing. My bet is this market would reflect a value approaching zero. How many times must we ne Enroned until we change?

  • N - Wednesday, January 23, 2008, 11:31AM ET  Report Abuse

    • Overall: 1/5

    Ben stein does not care about any one, that's why he keeps on misinforming the public. Last year he said Real Estate would not go down and we had a sound economy, ye right,what else can he say? He gets paid for telling lies and misleading public. that is his job.

  • faishu - Wednesday, January 23, 2008, 11:29AM ET  Report Abuse

    • Overall: 2/5

    Unfortunate as it is - we are stuck to hearing opinions. Opinions from a Optimist tends to be ... as opinions from a pessimist tends to be. Both of these groups, however well meaning, are just guessing. Both of these groups tend to overlook individual human plight during a recession, they just want thier theory of recessions to be right. Pay for all your stuff with cash.. dont buy things that yoou do not need. if you do these two things you will be rearing well desciplined children with right "Moral values"!!

  • Yahoo! Finance User - Wednesday, January 23, 2008, 10:43AM ET  Report Abuse

    • Overall: 4/5

    Right or wrong, it is nice to stay positive. I think this article is pure statistical and it is very useful to help people who are making emotional decision and end up losing a lot of hard earning money during this critical time. The worst situation is become an emotional seller or buyer in the stock market during this critical period. Eventually the stock market will go back up again but we just don’t know when.

  • jblivingston - Wednesday, January 23, 2008, 10:29AM ET  Report Abuse

    • Overall: 1/5

    Poor Ben is an idiot.

  • Natalie - Wednesday, January 23, 2008, 9:06AM ET  Report Abuse

    • Overall: 1/5

    I cant tell if he's a liar or a moron. Stocks and housing have another 30% to drop at the minimum. I assume he is a liar. No one could have watched the housing bubble with an understanding of economics and historical rent v. price and income v. price ratios and thought this could end well. Too many dumb ppl trying to make lots of money for little work. I will not shed a tear as those that paid peak prices or took equity out as prices rose lose their homes. The lesson is simple, dont buy things you cant afford. How could millions not understand that concept. You ppl that did are responsible for this mess and deserve financial ruin. Im renting. The savings are enormous, and I will look for a home again at the bank auctions in the next couple of years. Better make sure your things are removed from the home before I pay 40 cents on the dollar for it.

  • Yahoo! Finance User - Wednesday, January 23, 2008, 9:01AM ET  Report Abuse

    • Overall: 1/5

    Essentially, this is a test of a greedy and not too smart system (never mind that it's "still better than the USSR"), and this greed-based system has proven to be incompetent and not deserving any credit. If anything goes right, it's despite "free market", and when it goes sour - look for some enron, citibank, or other stupid crook. After all, all economists agree that the current global crisis was caused by corportate greed and stupidity but saying it as it is would be too much to ask from corporate whores, wouldn'it?

  • BAGDACK - Tuesday, January 22, 2008, 10:13PM ET  Report Abuse

    • Overall: 3/5

    Mostly true... the smart will survive the rest will curl in ball and cry.

  • Yahoo! Finance User - Tuesday, January 22, 2008, 10:12PM ET  Report Abuse

    • Overall: 1/5

    In 1989 the Japanese stock market was above 40,000. Now, almost 20 years later, it's below 13,000. Nobody ever mentions that. "Investing" will soon become a thing of the past.

  • Dee - Tuesday, January 22, 2008, 9:10PM ET  Report Abuse

    • Overall: 1/5

    BAAAAAAA! Where are all the stupid little sheep running too... BAAAAA did someone forget to tell you that the emerging markets would crash too when the mighty US market came tumbling down, BAAAAA. My how the mighty have fallen BAAAAAAAAAAAAAAA

  • Jd - Tuesday, January 22, 2008, 9:04PM ET  Report Abuse

    • Overall: 1/5

    Ben Stein is the poster child for the new age walmart republicans who want to outsource every last good job and pretend that everything will be alright if we only trust the markets and the market forces to put us into a blissful bubble of prosperity.... HOGWASH! This house of cards is coming down fast, and the only thing loosers like this ben stein want to do is to stop the bleeding long enough so that they can pull all their money out of stocks and save their own bacon. That is why he is pushing stocks to you right now, when they are one of the worst performing sectors to invest in . Never mind bonds or cds, commodities including precious metals, construction materials, and foods have been outperforming everything by leaps and bounds. And the whole line of crap about how it will get better, sure it might, but will it be in my lifetime or my childrens you are talking about. ex.. the stop market from mid sixties to early eighties actually lost value after factoring in inflation. in other words a dollar put in in 1964 might be worth 93 cents 20 years later!!!!!!! This is the kind of lunatic advice characters like this put out so that they can keep you poor dumb and in permanent servitude to their upper class lifestyle.. Now you know, please let this information free you from the bonds of life of worthless slavery to the free market idealist.

  • Wilbur - Tuesday, January 22, 2008, 8:44PM ET  Report Abuse

    • Overall: 1/5

    I warned you fools about this economic collapse months ago before the phrase subprime loans was even popular! Now you stupid loons will have to pay the piper!!! HA. And to beat it all, every intelligent writer who has posted here has commented on the huge increase in base inflation that is occurring. The worst possible scenario is approaching, recessionary inflation!!! For those of you clowns who still think that deflationary recession is the worst, just stick around and watch as our country and markets teach you an economic lesson that you sorely need! I hope all you ridiculers and mockers held every last share of worthless stock and mutual funds while my commodity investments have earned me over 37 percent in the last six months!

  • John - Tuesday, January 22, 2008, 8:28PM ET  Report Abuse

    • Overall: 1/5

    This article was clearly written before the three quarters point cut today, but is as lost as if it had been written two minutes ago. There is huge underlying inflationary pressures in the economy right now, and exactly what ben is writing about in the beginning of his article will happen if bernanke keeps the fed rate this low. There will be MASSIVE inflation and the fed will be forced to turn right around and raise interest rates to stop it. For those of you who are inflation doubters, at last report November cpi and ppi were at 34 year and 17 year highs respectively. If those numbers were to continue at that pace for the entire year we would match the worst inflationary years of the late 70s and early 80s.

  • Samuel - Tuesday, January 22, 2008, 7:49PM ET  Report Abuse

    • Overall: 2/5

    I am afraid this time your thinking is both in the clouds and more than a little cloudy. Your thinking that Mr. Bernake should have moved sooner to avert this situation reflects a limited understanding of the of the problems we face. This forthcoming recession - potential depression - is deeply enough embedded that a change in interest rate is like a flea on the back of an elephant. Look realistically at what our economy is facing. On the job front we will continue to lose mid to higher range income jobs to overseas competitors. On the entitlement front we are faced with a growing number of retirees that will be a drain on GNP with diminishing productive input. The reality of entitlements within the federal budget is so large that neither Congress or the Executive department have much wiggle room to have any significant impact on federal spending. There is a war that is draining billions of potentially productive dollars off of the economy. You have an overhang of home mortgages that alone could dwarf any significant turnaround in the economy for several years. You have heads of corporations that have spent years squeezing out every once of profitability to line their pockets, and have made little contribution to increasing the excellence and productivity of the businesses they manage. One could go on with many other problems that loom before us, but suffice it to say the economy will turn around - but not in the time period you have projected. If we are very fortunate I believe we will see a significant and lasting turnaround somehwere around 2015. That will be about the time other developing nations will have increased their standard of living to a degree that our nation will begin to become competitive again in both our labor and management. By that time we will have had the opportunity as a nation to be humbled, and we will be prepared to do the work and creativity needed to make us competitive once again as a nation. This I think is a realistic assessment. Samuel H. Shafer

  • JeffB - Tuesday, January 22, 2008, 7:05PM ET  Report Abuse

    • Overall: 1/5

    Just wait till the inflation numbers come out. Are we going to continue to keep rates low? This is a long way from being solved by lowering interest rates.

Showing comments 6-35 of 338<< PreviousNext >>
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