How do Wall Street’s troubles affect ordinary people? Here are some possible outcomes:
1. A rescue plan is passed and is effective. Then we get a minor increase in overall unemployment, two quarters of economic recession, and we’re done. Maximum unemployment is about 7 percent or so.
2. A rescue plan is passed and doesn’t work. Then we get an extended recession, possibly taking years to recover, with unemployment maxing out at about 10 percent.
3. No plan is passed. Here we get into uncertain territory. It all depends on how adaptable our economy is in getting savings converted through to make funds available for economic activity — something our system has been very good at, but that now seems shut down by the events of September 2008.
How bad is a recession in general? It’s terrible for those who lose their jobs, but in the U.S. it doesn’t mean people starve in the streets. Remember, even if unemployment hits 10 percent, 90 percent of the labor force is still working. As for making drastic changes in plans because a “recession is coming,” that’s a losing game. Example: Should someone drop out of college to save money because “a recession is coming”? Answer: No. The average recession lasts about 11 months. It’ll be over by the time you graduate.
Examples could go on and on, but you get the idea. Anything that’s a smart idea now — such as working hard and saving — will be an especially good idea is there’s a recession. Dumb ideas — such as buying a fast car you can’t afford — become even dumber if there’s a recession.