The Stages Of Economic Grief

In the world of economics, there is this idea of inflation and deflation; over time, prices for goods and services will increase as demand in the market place increases, usually at a faster pace than economic growth. There is a point at which these prices will become unaffordable, causing the consumer to stop purchasing them, resulting in a rapid "deflation" of prices. The result is, unfortunately for businesses, a loss of profits and investor confidence.

Theoretically, businesses experiencing deflation are presented with a stark choice; innovate or die - that is, come up with a way of doing business cheaper and more cost-effectively or fold up your company and start over from scratch.

Into this historic cycle of gains and loss we have the mythology that eternally-rising prices (particularly on the stock market) are a good thing. Financial reportage focuses solely upon the gains made in the Stock Market (or other speculative markets; bonds, commodities, etc.) as if rising prices were a good thing for the country as a whole.
They are not.
At this juncture, falling prices are good for the country. Right now, corporations are reacting to this financial crisis the same way a mourner does to crisis:

Denial: When the crisis first emerged last year, there was much talk about companies that were "too large/big to fail." Financial lenders, such as National City and Washington Mutual felt the rumblings of a problem with Adjustable Rate Mortgages sold to sub-prime lenders, but believed that more lending would solve the problem. Other banks followed suit, including investment banks which should never have been in the business of direct lending in the first place. In AA circles, this is considered the hallmark of addiction; denial that there's a problem and attempts to satisfy the craving with increasing amounts of the addictive substance.

Anger: Corporations such as Lehman Brothers and Merrill Lynch led the charge in the "blame the poor" cycle that still has some traction in certain circles. The argument goes something like this: The government, under the auspices of the Clinton administration's rules regarding lending and equal housing, "forced" banks to give loans out to sub-prime lenders despite the bank's knowledge that such mortgages were risky. The poor took out loans on houses they knew they could not afford and thus defaulted. As with any angry lie, this has a kernel of truth in it. Sub prime mortgages did cause the initial shake up, but the practices of the banks soon sucked in prime mortgage borrowers as well, furthering the recession and credit crunch.

Bargaining: Some of the executives of major financial institutions are beginning to enter this stage; some top-level execs publicly cancelling the purchase of new company jets, "working" for a $1 salary, the return of bonuses, etc. But the majority have not. Wells Fargo and AIG continue to have lavish "employee appreciation" junkets on the taxpayer's dime (which Wells Fargo described [rather aptly] as a part of their "corporate culture"). With the new administration in office, and with tougher sanctions such as salary caps in the works, there will certainly be a desperate mood swing on Wall Street and in board rooms across the nation relatively soon. Many will promise the moon as long as their "corporate culture" isn't taken away from them.

Depression: Though in true mourning, this comes after the bargaining, in the corporate culture, this came simultaneously. The bemoaning of a lack of consumer confidence, depressed sales, and plummeting stocks are all signs of depression, corporate-style. The (perhaps self-delusional) "pain" that many executives feel at having to cut thousands of jobs, however, does not seem to extend toward taking a pay cut, or going without pay, for themselves.

Acceptance: The stage most necessary for an economic turn around and the revitalization of a more equitable Capitalist solution to the current crisis is also the least likely to happen. Corporations and financial institutions must, like their AA counterparts, learn to live "sober." They must do away with the "highs" of multi-million dollar stock options, golden parachutes, and extravagant pay scales so that America can experience a true Capitalist turn around. To fail to do so would, most likely, result in growing consumer resentment and investor wariness as well as possible governmental intrusion into corporate practices.

As prices fall, consumers and everyday investors (those who have day jobs, for lack of a better term) are looking to corporate executives to act responsibly and to share in their pain. If they do, the investors will return and find some solid bargains on good companies which inspire their confidence. The lower prices may attract people of lower economic backgrounds to invest in the "American way of life."The market will rise, increasing the profits of investors and corporations alike. Corporate leaders will still enjoy a much heightened level of compensation, but perhaps not the extravagant levels of the 90's and 00's. As more investment floods the market, perhaps corporations will use those profits to reinvest in their workforce, research, investment, and social obligations.

However, the longer executives take to tighten their own belts (and not just the belts of the low- to mid-level employees in their care), the longer the recession - or rather Depression - will last.

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