Updated: May 3, 2013 12:14PM
Originally published: Jan. 6, 2002
Despite all the miracles of modern science, two common conditions elude a cure: recession and the common cold. And it strikes me that in many ways they’re much alike.
We always have some feeling that a cold is coming on; ditto for recession. We mostly try to ignore the ominous warning signs, continuing with our ordinary activities in hopes that the dreaded condition will somehow bypass us this time.
Early signals that should alert us are easily ignored. We sneeze once or twice and figure it’s a coincidence. In the case of the economy, the Fed cuts interest rates once or twice, but we figure that this time we can tough our way through any slowdown.
Listening for early signs of a recession
Or maybe you’re one of those people who listens to those early warning signals. You start taking extra doses of vitamin C or Echinacea or zinc. You stock up on orange juice and Kleenex. Your friends laugh at these home remedies, though you remember that they’ve staved off a cold before, or made it milder. Your friends ignore your dire predictions, and your occasional sneeze. Of course, you know they’re next in line to catch that cold.
Those are the same people who ignore warnings to pay down debt, not get overextended on that new car or house, and cut back on daily expenditures to build a savings reserve. They ignore colds and the early warnings signs of recession.
And you wonder if you’re just being too pessimistic, too self-protective, or maybe that you’ve just suffered through enough of these colds and recessions to try to do everything to make it less punishing.
And suddenly it arrives. The cold. The recession. If you didn’t see it coming, it’s shocking: “How could I be so vulnerable?”
That’s the common reaction. But by that time, it’s too late. Now you can only deal with the reality of a cough, sneezes, sniffles. It doesn’t help that there are multiple remedies in the drugstore. You’ve caught a cold, and you can’t shake it.
And there are multiple well-advertised remedies for dealing with recessions, as well. Cut taxes, increase spending, lower interest rates, give tax refunds, tax credits ... everyone has some advice. Just as your mom will call and remind you to drink a lot of water and get a lot of rest.
Well, in a way Mom’s right. If you don’t take some precautionary measures, that cold could turn into pneumonia. Or the recession could turn into a depression. But most likely it will be nothing more than a common cold, or common recession. We’ve lived through them before--but it doesn’t make us any less miserable right now.
And if there’s one thing you don’t want to hear just when your eyes are running and your nose is red, it’s the amazed pronouncement of your mom or spouse: “You’ve got a cold!”
Well, yes ... duh. I’m sitting here miserable and it’s pretty obvious.
Similarly, this week’s announcement by the National Bureau of Economic Research that the nation is in a recession--a recession that started last March--is also in the category of “news we didn’t need to hear.” But this bunch of economists is always late facing the facts. In 1991 they announced the 1990 recession--one month after it ended!
The backward-looking economist
Economists and cold cures are always better at hindsight. They never can predict the exact course of the malady, and they sure haven’t invented a cure. It’s like those prescriptions to take some aspirins, and you’ll feel better in about seven days. Or don’t take anything and you’ll feel better in a week.
There is one big difference between a cold and a recession. When you have a bad cold, everyone tells you to go home and take a day off. Of course, they’re worried about catching your cold. So you get to hunker down in bed, drink a lot of juice, and watch daytime TV.
With a recession, you don’t get a lot of sympathy from your boss or co-workers. They know a recession is contagious. But in this case, they’d rather have you around to be the miserable one, knowing that once you go, they’re likely to be next in line!
And that’s The Savage Truth.
Terry Savage is a registered investment adviser and is on the board of directors of McDonald’s Corp. and Pennzoil-Quaker State Co. Send questions via e-mail to email@example.com. She appears weekly on WMAQ-Channel 5’s afternoon newscast.