The End of Wishful Thinking

Posted on July 20, 2010


By Ben Stein  I am sixty-five now. I have lived through many recessions. The first one I remember clearly was in 1958 and the worst one, by far, until now, was the one in the late 1970s stretching into the early 1980s, when we had double-digit inflation and double-digit unemployment simultaneously. That should have been impossible, but thanks to union Cost of Living Adjustment contracts and skyrocketing oil prices, it was indeed possible.

Because the correction has hit hiring, real estate, and also stock prices so desperately hard, formerly upper middle class people find themselves very short of assets for retirement, owing more on their homes than the homes can fetch, and either jobless or underemployed. They are truly afraid on a scale I never expected to see.

In a word, I am seeing real desperation, which I have never seen before up close and personal. This is especially true of those facing retirement.I see it even in the very tony neighborhoods where I hang out, like Beverly Hills and Rancho Mirage and Malibu. Older people and even younger people are scared.

But the current recession, which really started with some very tense days in late 2007 and began in deadly earnest when Hank Paulson, possibly the most incompetent Treasury Secretary of all time, allowed Lehman Brothers to fail, has been the most upsetting for several reasons.

For one, it has hit the people closest to me the hardest. Until now, I never had a friend who was truly in financial extremis from a recession. When recessions happened, they happened to people in Ohio or Illinois or Michigan. Now, they have hit hard in California and in the law field where so many of my friends work and in Washington, D.C. (yes, even in D.C.) where I am from. I never had a friend lose his house until this recession and now I am sad to say I have many pals who have either lost their homes or are in process of losing their homes.

Next, because this recession hit employment so hard, but also hit home values so hard, many of my friends, who thought they were rolling in real estate equity, find themselves without work and also upside down on their homes, with lofty mortgages to pay, and no ability to sell their homes.

This is not happening to people in faraway places. This is happening to people very near me. Extremely near me.

However, as the economist I am, I try to not only watch and wring my hands, but to draw lessons and rules from the experience. Here are a few of them:

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