Thirteen unexpected
consequences of the financial crises
Last year had more than its share of vertigo-inducing headlines: major banks
suddenly disappearing, the Dow plunging day after day, and billion-dollar
bailouts failing to make a dent in the worst financial crisis since the Great
Depression.
Already, the Wall Street way of life seems to have gone the way of the dodo. An
entire country—are you reading this, Iceland?—went belly up overnight. And good
luck if your last job title was “mortgage-backed securities trader.” But if
there are some predictable economic hardships we can expect from the current
crisis, there are also some trickle-down effects that aren’t so foreseeable.
Here, 13 surprising consequences of the crash:
1-Your government will get smarter... In a global recession, governments around
the globe will be able to recruit a better class of bureaucrats. Just a few
years ago, the U.S. government had serious recruitment problems in the Foreign
Service because no world-savvy 25-year-olds wanted to work for the civil service
when they could make serious cash on Wall Street. In a severe downturn, however,
the stability and security of a government job look far more appealing.
2…and more corrupt. Politicians’ palms are about to get greasier. A global
downturn shrinks the demand for goods and services worldwide. That means the
security of a government contract will look pretty sweet to any businessperson
struggling to stay afloat. A January report from Transparency International
warned that corruption is bound to increase worldwide during the current crisis,
as businesses prioritize survival over corporate integrity.
3-Gray skies are gonna clear up (at least a little). The central factor in
projections about global warming is long-term extrapolations of current economic
growth. Thing is, I doubt the Intergovernmental Panel on Climate Change expected
Wall Street to tank as spectacularly as it has. The longer the global economy
stays in recession, the less greenhouse gases are emitted into the atmosphere.
You still might not be able to breathe easy in Beijing, but your odds just got
better.
4-The Internet is about to get a lot more #@%$ing annoying. Newspapers are
looking to online advertising revenue to deliver them from bankruptcy court (and
eventually, total eradication). So, expect more Web advertising on your news
sources—pop-up ads, welcome screens, articles hacked into ever shorter segments
to maximize clicks—that cannot be escaped easily. Or at least not without
getting extremely frustrated.
5-Glory days for evangelicals. Bad times are boon times for evangelical
churches. Economist David Beckworth of Texas State University has crunched U.S.
church attendance numbers and found that congregation growth at evangelical
churches jumped 50 percent during each recession between 1968 and 2004.
6-Your kids will be savers. Macroeconomic realities in your childhood have a
profound effect on your financial choices later in life, regardless of how much
money you make, according to a study by economists Ulrike Malmendier and Stefan
Nagel of the University of California, Berkeley, and Stanford University,
respectively. The generation that grew up during the Great Depression, for
example, was more risk-averse than its parents and its children when it came to
money. Your kids, in other words, won’t be addicted to E*Trade, but you’ll
probably find their allowances stuffed under their mattresses.
7-Skirts will get longer. Here’s a piece of Wall Street folk wisdom: There is a
rough correlation between bull markets and bare knees. During boom times, skirts
get shorter. In these bearish times, prepare for hemlines to head south.
Somewhat in relation, we’ll see something else go north: the age and weight of
Playboy centerfolds. Evolutionary biology encourages people to seek “more
mature” mates during times of economic insecurity, argue Terry F. Pettijohn and
Brian J. Jungeberg in one of the more interesting studies published recently in
the Personality and Social Psychology Bulletin. To support their claim, the
researchers showed that during recessions, centerfolds get older and, well,
rounder. Similar studies have confirmed an identical trend in movie
comedies—male and female leads get older during recessions.
8-Your military just got bigger. The age group that will be hit hardest by the
current downturn? The world’s 18- to 24-year-olds. This group just so happens to
be the prime recruiting age bracket for militaries, which can generally offer a
steady paycheck and decent benefits. Indeed, the U.S. Army exceeded its
recruitment goals in the last three months of 2008 for the first time in 5
years. And as the war in Iraq winds down, these new soldiers’ fears of being
deployed in a hostile combat environment should wane. The few and the proud
might grow into the many and the desperate.
9-State schools will be cool. A prolonged downturn will profoundly affect
institutions of higher learning. For the past decade, private schools far
outpaced state schools in terms of resources and expenditures as their
endowments swelled from the long financial boom. Many elite universities
followed Harvard’s lead and adopted need-blind admissions with generous
financial-aid packages.
That’s all about to change. Endowments in the United States have declined 10 to
30 percent during the past year, which will make need-blind admissions a thing
of the past and financial-aid offers far less generous. The credit crunch will
also make it more difficult for young people to secure reasonable student loans.
10-Boomers will refuse to leave the building. A whole tier of older employees
who planned on retiring now or in a few years simply can’t—their 401(k)
retirement accounts look way too scary. In 2008 alone, U.S. workers aged 55 to
64 who have had 401(k)s for at least 20 years saw their retirement balances drop
an average of 20 percent. This means those who expected promotions when the
boomers cleared out are going to have to stew in their own juices and gripe
around the water cooler. Office politics just got a lot nastier.
11-The world is no longer flat—and fewer people will care. Global downturns
often breed protectionism and other barriers to foreigners. Cross-border tourism
is likely to plummet. Study-abroad programs will also be affected—the New York
Times recently reported a dramatic decline in South Koreans studying overseas.
News outlets are also likely to further scale back their foreign news bureaus to
cut costs.
12-Nouriel Roubini’s frequent flyer miles will go through the roof. One business
will be big this year: conferences on the crisis of capitalism. The Dr. Dooms
and Cassandras of the most recent bubble era—economists such as Nouriel Roubini,
Robert Shiller, Stephen Roach, and Joseph Stiglitz—will be doling out advice and
“I told you sos” in convention halls and conference rooms around the globe.
Indeed, in the month of January alone, Roubini traveled to Istanbul, Dubai, Abu
Dhabi, London, Riyadh, Zurich, Davos, and Moscow. The likely difference now?
Seats in coach.
13-Great Depression lit will be chic. Eras like to mine the cultural tropes of
analogous eras from the past. So, expect books about the Great Depression to
dominate Amazon rankings. Already, Hodding Carter IV has received a big advance
to write A Year of Living Within Our Means, a book about his family living
strictly within its budget by using cost-cutting measures from the 1930s. And
somewhere, you just know Ken Burns is making a 25-part documentary on the Tom
Joads of this world.