You're the economy, dummy

Jan 30, 2008

You know what they say about opinions.

Well, it can’t be printed here, but suffice to say the punchline of that old joke is that everyone has one and most of them stink.

Whether or not you entirely agree with that somewhat rustic pearl of wisdom, it does come readily to mind when conversation turns to the economy. People are using the R-word quite a lot lately, pointing to some recent bearish behaviour in the world markets.

In fact, some almost seem excited when they talk about a possible recession. And it is something you can hurl at your favourite whipping boy, whether that be a politician, consumer culture, big corporations, little green men or what have you. Nothing makes a person sound smarter around the water cooler than predicting doom and laying the blame at the feet of an easy target.

The question is, how much is the economy influenced by those big things we can point our fingers at? Some, definitely. But there really is nothing bigger than ordinary folks when they interact, and that is the source of government’s power, of corporate power and of culture itself. And indeed, even little green men are not entirely unrelated, if viewed as a myth, spread by people.

What does that mean? It means we ordinary people are responsible for most of what we gripe about.

The economy is a fine example. We are all part of it, acting, reacting, interacting. It is our collective financial situation, not something run by the governments. And the fact is, it behaves much as we do.

Do you work at full speed, all day, every day? Of course not. You sleep at night, you get breaks and days off. You can’t be going all the time.
So it is with the economy. It grows a while, then it rests, then it grows some more. That’s normal.

Perhaps the memory of the Great Depression still affects the way people view the normal ups and downs. But the real lesson to be learned is that reacting without thinking makes things worse.

The stock market goes up and down. That’s its nature. In the long run, it goes up. Your number of shares remains the same, even if the value drops, and you don’t actually lose any money until you sell. And what do shareholders tend to do when things get rough? How much market instability can be attributed to people jumping in when things are good and bailing out when they get rough?

Just a hint: in order to make real money you need to do the exact opposite.

But it is reactionary, not rational. Just as people hear that word, recession, and decide to cut back their spending, holding off on things they would otherwise have purchased.

Another tip: The economy is fueled by spending.

This is not to advocate blowing money carelessly, but when you change your normal spending habits, the effect spreads to the retailer, the wholesaler, the trucking company, the manufacturer and the producers of the raw materials, not to mention all of their employees and everybody they would ordinarily give money to. Somewhere along the line, it comes back to your source of income.

If enough people do the same, the ripples get bigger.

What is the answer? Accept that the economy can’t grow all the time. Be satisfied that it seems to grow most of the time. Keep doing what you’re doing and bear in mind that success is built on accepting a certain amount of risk. There is no easy money for honest people.

And while you’re at it, tell that guy at the water cooler to shut up.