Wednesday, October 13, 2010

Winning During the Slog: Part 1 - The Long, Slow, Hard Economic Slog

(from Issues for Growth Vol.19, No.13)

In October 2008, when we first presented a possible scenario for the recovery – a long extended period of very slow growth - a long, gray period, many of you questioned whether my typically optimistic personality had taken a cruel twist. Like most everyone else, I searched daily for the traditional signs that the recovery was on the way. But as time progressed it has become apparent that my worst fears are being realized. We can no longer ignore the fact that we are in for a “long, hard economic slog.”

Webster defines slog as “hard persistent work” or “to plod perseveringly against difficulty.” One business owner recently told me it was like running as fast as you can, but not getting anywhere. It’s frustrating; it’s scary; it’s fatiguing. For many, it can be demoralizing. We see some business owners ready to throw in the towel.

Will this period break the spirit of American capitalism? Will years of rejection and lack of success reverse that fundamental optimistic notion that innovation, hard work, determination, and perseverance will ultimately win out?

I do NOT believe that.

In fact, there may be greater opportunity today than ever before - if you know where to look. One thing is for sure – the old ways of dealing with a recession and recovery will not work. New ideas, new business models, innovative products and services will ultimately win the day. For the next several editions of Issues for Growth, we will be focusing on the ways that companies – and individuals – are winning in the long slow slog.

The Long, Slow, Hard Economic Slog. In this September 10th Opinion in the Wall Street Journal, Nobel Laureate Economist Vernon Smith and Steven Gjerstad suggest that we are indeed in for a long slog.

Our study of all the postwar recessions and the Great Depression leads to the following empirical proposition: If there is no recovery in housing expenditures, confirmed by a recovery in consumer durable goods expenditures, then there is no economic recovery.”

They summarize their study and findings with this: “The average increase in new residential construction in the first year following the previous 10 postwar recessions has been 26.3%. The largest increase in residential construction followed the 1981-82 recession, when it increased 75.5% as monetary policy was relaxed. In the past year, residential construction has increased 6.3%. This is the slowest rebound in residential construction in any sustained recovery from a postwar recession. No currently debated policy will likely change this situation, as the market is saturated with foreclosed houses and homeowners suffer from $771 billion in negative equity. This fact needs to be confronted: We are almost surely in for a long slog.” Click here for the full article.

What are your thoughts?

No comments:

Post a Comment