South Dakota magazine editor (and incoming Democratic state legislator) Bernie Hunhoff sounds just a little like President George W. Bush this morning. In his weekend musings on the economy and what we can do to be more like our northern sister state than the rest of the floundering national economy, Hunhoff offers a sort of Serenity Prayer for the local economy:
As Dakota conservatives, we should do our best to keep things going as they are; let's keep our neighbors working and keep our locally-owned stores going. We can't change the currency rate or restore sanity to Wall Street, but we can fight off the recession by buying a cup of coffee and pie at Joe's Cafe in Alexandria.
That's a sacrifice I'm willing to make for South Dakota [Bernie Hunhoff, "What Recession? Or When?" South Dakota Magazine: Editor's Notebook, 2008.12.06].
A casual reading might leave you thinking Bernie is saying "be a good American: go shopping!" However, I do credit Bernie with somewhat more thoughtfulness than our President. A recession is by definition a period of less economic activity, so if you want to get rid of a recession, prescribing more economic activity (more pie at Joe's, more shopping at Books and More) is perfectly logical.
The key words there: if you want to get rid of a recession. We assume a recession as bad thing, to be gotten rid of, if not avoided. But is it?
I can think of hypothetical situations in which a decrease of economic activity would not inherently be a bad thing. If an economy were based on unhealthy economic activities—cocaine production, prostitution, predatory lending—a recession in those industries could be desirable. Short of those extremes, there are certainly times when it would make sense for a lot of Americans to cut their spending by five or ten percent and put those savings away for college, retirement, and rainy days.
The problem: when the economy has been surviving on a negative savings rate (people spending more than they earn) since 2005, then a sudden sensible move toward savings causes a recession (as Dean Baker predicted in 2006).
We're in this recession because we were buying more than we could afford, and we had to—have to— stop. Banks do need to dry up some credit. Homebuilders need to sell smaller homes. Americans need to buy less stuff. We need a recession.
So how do we soft-land that recession—well, maybe we're past that point. How do we make the recession a soft crash instead of a hard crash? How do we accept the recession and buy less without driving our local merchants out of business?
It may take a hatchet... used like a scalpel. We can't cut all of our spending: we still have to eat, and so does our local grocer. We can, however, prioritize our spending and cut judiciously. Maybe keep your morning dollar coffee at Joe's or the Country Café, but skip the Starbucks when you visit Sioux Falls. Rein in your out-of-town spending first, and keep your money circulating on your own Main Street as long as you can. For many families, even that may not be enough: to climb out of credit card debt and cover their mortgages and health premiums, they may have to skip those Sioux Falls trips altogether and still not go down to Joe's or the local DQ as often.
Wherever we make our judicious cuts, that decrease in spending still means a recession. Even if we all go loyally local, bigger economic forces beyond our control will still knock down some of our local businesses.
The recession is big, and it's necessary. Instead of fighting it, we should use economic judo (any advice, Mr. Putin?): absorb the hit, roll with it, save all the local businesses we can, and come up on a stronger footing of positive savings and conservative spending.
Update 13:48 CST: ...like folks refinancing their mortgages and socking the savings away for later.