I read Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy by Dan Gross. It's a great book about how, and why, the 2008 recession will make the economy stronger in the long run, and why the pessimists are mostly wrong.
The book was published three years ago, but is still highly relevant to anyone curious about how recoveries out of deep financial crises work. Here are six things I learned.
1. America gets up and moves on faster than most after recessions because we embrace failure:
Financial failure in the United States tends to get worked out much more quickly than it does in other developed countries. That can be ascribed in large part to America's distinct financial culture. In Britain, where debtors' prisons persisted until the 1860s, financial failure is still heavily frowned upon. In Italy until 2005 people who ran companies that went bankrupt could lose their right to vote. In the 1990s Japanese banks permitted zombie companies to stumble around for years without paying their debts because they wanted to allow managers to save face and didn't want to admit failure on their balance sheets. In the United States, the land of second chances for so many people over the centuries, financial failure doesn't carry much of a stigma. In fact, we expect that people won't pay a portion of their debts.
2. America recovered so much better than almost everyone else:
Instead of persisting for years, the recession that started in December 2008 ended in June 2009. In the first quarter of 2009 the U.S. economy, we now know, was shrinking at a 6.7 percent annual rate. By the fall of 2009 it was expanding at a 3.8 percent annual rate. That's a change in the rate of annual growth of 10.5 percent in a six-month period — unprecedented in modern history. Objectively speaking, in the aggregate, the United States has come back better, stronger, and faster than its peers. In June 2011 Martin Wolf, the sage Financial Times columnist, wrote, "Of the six biggest advanced economies — the U.S., Japan, Germany, France, the U.K. and Italy — only the U.S. and Germany had higher gross domestic product in the first quarter of 2011 than three years before." Three years after the September 2008 meltdown, the United States was leaving its credit mess behind. By contrast, Europe was headed into a fall of discontent, fueled by raging debt and political crises.
3. Recessions also supercharge businesses' desire to be more efficient:
In 2008 and 2009 Walmart replaced about two-thirds of its fleet with newer models. By 2008 the fleet was up to 7.1 miles per gallon, an increase of 20 percent. But the company also focused on areas that had nothing to do with energy and everything to do with making incremental improvements: route mapping, logistics, and packing schemes that eliminated unnecessary driving. Driving less produces the same amount of cost savings as driving more fuel-efficient rigs and doesn't require as much up-front investment. Between 2008 and 2010 the company increased the number of cases of goods it delivered to its U.S. stores by 134 million, while eliminating 149 million miles of driving. Fewer miles, more goods, and less gas used per mile translate into significant savings. Walmart is a case study in continuous improvement in efficiency.
4. Pessimism is the norm:
During the New Deal, bankers and industrialists earnestly fretted that Franklin Roosevelt, an un-American socialist, would ruin the nation's prospects for growth by establishing a new welfare safety net. The USSR's launch of the Sputnik satellite in 1957 inspired fear that the Soviet Union's apparent technological advantage would lead it to triumph in the Cold War. In the 1970s there was widespread talk of malaise. Next, Japan went on the attack, this time with exports of electronics and cars and armed with yen to buy trophy properties like Rockefeller Center and Pebble Beach. Despite the triumph of Western capitalism over Eastern socialism at the end of the decade, the United States felt it was losing ground to countries that were more hard-core about schooling, training, and protectionism. "The Cold War is over, and Japan won," as Senator Paul Tsongas, a Democrat from Massachusetts, said during his 1992 presidential campaign.
5. Predicting is hard because things always change and luck, accidents, and mistakes happen:
It's tempting to think that history unfolds in a steady, linear path and that events are destined to happen. But as I learned twenty years ago in the basement of Robinson Hall at Harvard University, in a seminar with the great colonial historian Bernard Bailyn, we must regard history — and the present — as contingent. At any moment things can go either way. On the morning of July 1, 1863, it was entirely possible that the Union would falter at Gettysburg. A century later, on November 22, 1963, it was entirely possible that Lee Harvey Oswald's aim would not be true. As late as 2006 it was still entirely possible that the worst of the subprime crisis could have been averted. After the fact we ascribe a pattern and logic to events that were not apparent when they were happening. It's entirely possible the United States is doomed never to recover from the self-inflicted economic wounds of 2008 – 2009. It is also entirely possible — even more, entirely plausible and probable — that it will get past them in time.
6. We still got it:
So is the United States of America a nation in terminal economic decline? If your private sector responded to a once-in-a-lifetime shock by paying down debt, becoming more efficient, boosting productivity, shoring up savings, and doubling profits, you may not be a nation in decline. If you are a magnet for immigrants, tourists, and capital, and if record numbers of people come to visit, tour, study, work, and invest, you may not be a nation in decline. If your population continues to grow, and you have a set of demographic conditions that supports growth rather than imperils it, you may not be a nation in decline. If you have businesses, brands, and business models that can take the world by storm, grow from nothing to being extraordinarily profitable, and show a continual ability to break into new markets, you may not be a nation in decline. If you are growing at a 3 percent annual rate from the highest base in the world, adding $160 billion in new economic activity every quarter, $1.33 billion every day, you may not be a nation in decline.
Go buy the book here. It's great.