Would a recession right now be that bad?

Would a recession right now be that bad?

I remember the first time I saw a forest intentionally set on fire. Forest fires were one of the scariest ideas to a child living deep in the woods of northern Michigan. Growing up, we had over 40,000 acres of state forest surrounding us. This made the movie Bambi traumatizing

Yet as we drove down the highway I watched professionals not only letting a forest burn; they were actually starting the fire and keeping it going between the trees.

These controlled burns are great for forests. They open up the land, cleaning it of thick, cluttered underbrush. The trees that are left behind become healthier and stronger. They get more sunlight, more nourishment. Pests and diseases are reduced.

On the other hand, a wildfire is extremely destructive. Decades of drought and long periods without fire eventually lead to an unavoidable conflagration that is too big, too devastating. Both overgrowth and healthy plants alike are consumed.

Is it possible financial downturns are exactly the same? With everything going on in the world, headlines worried about a “recession” are coming up more often. But this makes me wonder: is a recession always bad?

If you look closely, it turns out recessions do have positive effects. Downturns have a corrective influence, as they tend to reveal the natural consequences of bad financial behaviors. The 2008 recession reminded us of the dangers of excessive debt. The 2020 pandemic reminded us of the need for emergency reserves.

These are some of the positive outcomes from financial slowdowns:

  1. Recessions provide a healthy counterweight to our natural greed instincts. During periods of expansion, we get carried away. All of us – leaders, consumers, investors – assume that good times will go on forever, so we over-extend ourselves. Periods of contraction help us learn wisdom.
  1. Recessions help investors be more disciplined. In times of great prosperity, investment money goes places it has no business going. There’s simply more cash available to invest during good times. Investors increasingly chase the next big success, often forgoing caution to avoid falling behind. Recessions separate reality from wishful thinking. As Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.”
  1. Recessions can strengthen core aspects of the economy. They reveal areas of weakness, allowing us to fix our deficiencies. If you review the long list of US recessions, you’ll see that we no longer struggle with the same issues we did 100 years ago.
  1. Recessions present buying opportunities for those who are prepared. In the book of Genesis, the farsighted Joseph prepared for the devastating famine he had previously warned everyone about. When the Egyptian nobles came to purchase from his storehouses, he eventually “bought all the land in Egypt for [his master] Pharaoh.”
  1. Recessions spur growth and innovation. There is plenty of evidence that recessions give new opportunities to people who would have never had them. For example, when Jay Pritzker bought the discounted Hyatt House Motel in a 1957 recession, it was incredibly risky – but it grew into a global Hyatt Hotel brand because of it. This has been labeled “creative destruction.”

Of course, I don’t deny how traumatizing recessions can be. A laid-off employee will find little personal comfort in learning that the long-term economy may be strengthened by the process. Parents struggling to put food on the table will not be encouraged that those with more means will find good investments “on sale.” Anxiety and worry hit those at the bottom of the economy the hardest. Downturns cause suffering that is real. It can feel very bad for many, which is why it is surprising that recessions still have a positive effect on health and mortality

The Christian tradition includes a call to embrace personal suffering, to accept it as part of life. We are not to desire or seek hardship, but neither are we to fear or flee it. God allows adversity and somehow uses it to our benefit. This should lead us to actually welcome trouble with joy (James 1:2). Not all suffering is bad.

Every parent knows difficulty helps a child grow. We hold in tension the desire to fix everything for our kids and also to the goal that they learn to navigate challenges on their own. The New Testament portrays God as a loving Father who likewise protects but also uses hardship to grow his children’s character and faith (Rom. 5:3). Suffering clarifies, focuses, somehow strengthens. It is what turns wide-eyed rookies into stalwart veterans. St. Peter calls this process the “refiner’s fire” (1 Peter 1:7).

If troubling fires have the same refining effect in our own lives that a downturn brings to the overall economy, perhaps we can stop worrying so much about whether a recession is coming. Maybe we can divert that energy into preparing for financial trouble without fearing it. And then learn to embrace with joy the effect such a controlled burn might provide us long term.

Hiring a financial planner can help you better position your finances for the future. Schedule a 15-minute call with one today to talk with the Sound Stewardship Wealth Advisors about your personal situation.

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