Everytime I tell someone now what my major was in college the common response is “well, with the state of the economy, what is your opinion? what do you think we should do?” This is an extremely tough question to answer for two reasons. One is that although economics is my major and I was great at it, the economy is tremendous that economics uses simplified models to make sense of it all, one person spending an entire lifetime can’t get very far (unless your Becker). What I know about the state of the economy is a collaboration of many other collaborations to try and make sense of it all. The second reason that is a tough question is because nothing about our economic state is defined. We are still dancing around the R word (thats recession for non-dorks), the Dow jumped almost 1k yesterday (a dramatic turn), and many of the key elements to a textbook recession just aren’t there (what does a credit crunch really look like then?).
My opinion on the state of the economy is that it is down… duh! Who cares about a text book recession, or a bank crisis, or what the fed is going to do tomorrow. If you are feeling the hit in your wallet and your emotional state then the economy is down. Ready for the shocker? Who cares about that either. We know that the economy is cyclical and Keynes showed that there are actions that can smooth it out, even if you can’t name what will do it in jargon you have been taught it through common sense and general money management (I hesitate to say money management since in America we spend 101% of all the money we make, not including government debt, we should call it debt management). Keynes thought we need government to get us out of a downturn but I just think we need smarter consumers. Government is an option but not the only one.
In a downturn if people pull their money out of the economy and out of investment the economy will have nothing to recover, think of it like a complex game of marbles. If no one is bringing any marbles to the table it wont draw anyone else to bring their marbles, everyone is standing around holding their marbles which are now worth nothing since you can’t even use them. Put your money into the economy to make it worth something, but do it in a smart way. Only invest when the interest rate is good, interest rates although set by the Fed are a market and you can get a better deal than what is first offered to you, play the market. If investing isn’t your style then spend the disposable income you have, people like to save in a downturn “for a rainy day”, but this is the rainy day and if you don’t spend it could become a hurricane. Make sure you are smart and cover your needs but then go out and buy tangible goods that will be of good use to you for the future (like a bike!).
And lastly, although it is extremely difficult don’t let it ruin your life. It is temporary, it will pass. Luckily we have many smart people who are brave enough to stay out of government and make their impact from elsewhere, maybe Helicopter Ben will read their books and blogs and make some good moves to pull us out quicker.
P.S. Please don’t read this and take it all to heart. Hopefully it sparked some interest and you read up more on the economy. I am not the only say and there are a lot of people who are smarter than I am that would disagree with me (and a lot that would agree).