At the risk of being highly controversial, and in the knowledge that there are hundreds of thousands of people in the UK either already, or likely to be facing economic hardship, I wanted to write a post about why I think recession is a good thing.
Of course, we haven’t in pure economic terms, actually reached that point yet, but the signs are that it’s only a matter of time.
I have no doubt that far wiser people than me can come up with many more reasons why recession is a bad thing, but nevertheless here are my eight reasons in support of my positive view:
1. Like it or not, property prices, particularly in the South East are completely out of hand. Apart from the fact that first time buyers have effectively been shut out, a correction in the property market was long overdue and will ultimately bring some sense of realism to that sector. Credit and the advancement of credit, was completely out of control. The amount of debt being taken on by individuals and businesses, and the willingness of financial institutions to lend in a cavalier fashion, has all ended in tears in what we are all now calling the “credit crunch”. In reality, whether it was the sub-prime market in the US or some other national or international problem, this was a disaster just waiting to happen. Recessions teach people lessons, hopefully ones that they will never forget. They will learn that as borrowers, they should not over-extend themselves and as lenders, they need to be more cautions and circumspect.
2. Generally, as a society, we have become very materialistic and profligate. People generally tend to spend as if there is no tomorrow and everyone wants the next new gadget and they want it now. Savings statistics emphasise the lack of financial prudence on the part of much of the UK population. In times of economic downturn, people need to be able to fall back on savings. Recession could well teach a whole generation an important message in this respect.
3. Year after year of economic growth, under-pinned by ever increasing property prices has led many to lose sight of the value of money. I am of a generation who used to drive a few miles to a cheaper petrol station, even save scrap paper for writing on – when eating out at restaurants was a treat rather than the norm. Many of our younger generation have been brought up in their early working lives on a diet of restaurant visits, take-aways and other fast food. They expect at least one holiday a year, their own car, the latest in fashions and of course ipods, mobile phones the list is endless. This is middle England. Many of these people are going to find out the value of money when they don’t have it anymore. It will be a harsh but well learnt lesson.
4. It has been said that the last 11 years have been one of financial stability, growth and even boom. Someone in their mid 20’s, will have no memories of the difficult times at the and of the 1980s, beginning of the 1990s or going back even further, to the end of the 70s when rubbish piled in the street and Britain really was brought to its knees. The message here is that nothing lasts forever. Whilst our economy has managed to avoid the boom/bust profile of earlier years, these corrections remind us that economic growth is not a given. It should also suggest to us that however bad things become, we will come out of it and probably the stronger.
5. There are some who say that society has become a pretty soulless place. When times get tough, people tend to be more supportive, caring and sensitive.
6. Economic prosperity in the long run is bad for business competitiveness. Business owners become complacent and just like individuals, take continued success for granted. In difficult times, they need to learn to “batten down the hatches”, save expenditure, improve their systems and generally run their businesses better. This drive towards productivity, efficiency and automation is good for all of us in the long run,
7. Another feature of economic prosperity is that markets become saturated as more and more businesses enter a particular sector. Whilst this can be good for prices at is exerts downward pressure, it can also lead to sloppy service, poor products and generally higher and considerable dissatisfaction. Recession forces the weak businesses out of the system. Generally these weaknesses are the one who are cutting corners leaving the well run ethical and well intentioned businesses in place.
8. The current financial situation, described by some economists as “stagflation”, is a situation where we have increasing inflation and falling growth figures and unemployment figures. Much of the inflation that we are experiencing in the UK at the moment is effectively beyond our control. High oil prices, albeit starting to fall, have affected many products and services and food inflation, largely due to the almost insatiable demand of the new economies of China and India have resulted in a situation where farmers have never had it so good. Nevertheless, the supermarkets in the UK have already started a price war and in difficult times, businesses unable to hit their sales targets are often reduced to price cutting. A recent announcement about the UK case sales led to a raft of special offers.
So those are my eight reasons for why recession could be good in the long run. I suppose it’s a little bit like when my mother used to say to me when I was ill as a child. Take the medicine, it may not taste great, but it will be good for you in the long run.