The Upside to the Down Economy

Shakespeare jumped the gun. It was the winter of 2002-2003 that was truly the season of our discontent.

Unemployment was up. The trade deficit was up. Gas and home heating oil prices were up. And anxiety over the impending war with Iraq and the threat of terrorism was way, way up. About the only things going down were revenue, stock prices, retirement account balances and consumer confidence.

An eternal pessimist, I grudgingly vowed this past New Year’s to adopt a more upbeat attitude. After all, there are two sides to every coin, and the difference between the happy and well-adjusted folk and those prone to melancholy and malaise often comes down to a mere shift in perspective. So in my effort to achieve my resolution, I’ve taken a good hard look at this past winter. Lo and behold, there have indeed been a few silver linings hiding inside those ominous black clouds.

Reasons to Be Cheerful

The airlines. No industry has suffered more directly from the 9/11 tragedy than the airlines. Take rising fuel costs, the fear of flying and dwindling corporate travel budgets, and you have a nice recipe for Chapter 11. Among the big carriers, United Air Lines is the leader on the runway to oblivion. To save money, the airlines are skimping on their already pathetic snack menus and clamping down hard on carry-ons by charging fees when passengers exceed the limit. It says a lot about the state of the industry when the only bright spot is provided by a plucky startup called JetBlue.

From a passenger’s perspective, however, the industry’s struggles have resulted in certain fringe benefits. With fewer passengers, there’s much less jostling for aisle seats, pillows and those precious onboard magazines. With the airline employees’ jobs perhaps depending on whether you’re having a good experience, everyone seems more than a little bit friendlier, more eager to be of service. And fewer passengers translate to fewer people who are hypersensitive to peanuts. (Hopefully that means I no longer have to scarf down my candy bars furtively to avoid detection by the peanut police.)

It’s said that bad times bring out the best in people, and that adage can be applied equally as well to the airlines. The next time you’re on a flight and you hear the attendant chirping over the PA, “Thanks for flying with us today,” you can be certain that these days they actually mean it.

Capital gains. For a while there, around the turn of the century, I actually entertained fantasies of being an amateur version of Warren Buffett. Every stock I bought recorded double-digit gains every few months. Everything was going so well I started to worry about the dreaded capital gains tax.

That was then.

Now, if your investment portfolio is anything like mine, you haven’t seen a capital gain since the third quarter of 2001. Thankfully, the tax code provides some solace.

With regard to my federal taxes, I can throw that Schedule D right into my circular file. One less tax form to fill out and double-check translates into almost three more hours of quality time I can spend with my family. But the real value add comes when it’s time to file my state return.

Taxachusetts—I mean Massachusetts—has a lovely capital gains formula. Forget about long-term gains and short-term gains, says the Commonwealth. That’s for the federal simpletons. In the land of the bean and the cod, tax rates for capital gains can fall into a handful of categories. For example, if you’ve held a stock for less than one year before selling it, you’re going to pay the piper in a big way. But as one might expect given our frugal puritan heritage, the rate goes down according to how long you’ve resisted the urge to go wild and cash in. There’s one rate for stocks held for one year but not more than two; another for stocks held for two years but not more than three. For more than three years but not more than four? Yet another rate. This goes on until you’ve owned a stock for more than six years. After that, the state stops torturing you and fixes the rate.

Things get really exciting when you buy stock during several years through an automatic investment plan and then sell the whole lot. When that happens…well, that’s when a PhD in finance comes in handy. But I don’t have to worry about that now. No capital gains means me and my calculator will remain casual acquaintances for the foreseeable future.

Work ethic. With layoffs, productivity is on the rise. Driven by the fear that the pink slip is in the interoffice mail, fewer people are doing the work previously done by many. (The many, of course, already received their pink slips.) Consequently, there’s a sense abroad that more than ever, people are keeping their noses to the proverbial grindstone.

But layoffs and the fear they engender are only part of the reason why employees are exhibiting a newfound work ethic. With 401(k)s and other investments taking a beating, no one’s wasting their time checking stock prices on the Internet. Plus, no raises and no bonuses have cut down on online shopping from the office. Truth is, there are fewer things to distract us from our work in a down economy.

And the biggest distraction of all—the promise of early retirement—has gone the way of the defined-benefit pension plan. Nobody expects to cash out and hit the links by 45 these days. Indeed, with early retirement rapidly receding to pipe-dream status, there’s a new emphasis on long-term career planning. For people looking to ensure their financial future, there’s a new need to buckle down and concentrate on getting ahead. This translates into greater dedication among employees who realize that the stock market won’t be their ticket out of the 9-to-5 grind. To earn one’s keep by actually working for it is back in vogue.

On the subject of working for a living, that’s now something vendors are doing. With the Y2K and Internet technology spending booms a fast-fading memory, salespeople (with the exception of Microsoft’s reps) had better be humble. Even if, as they say, the technology sells itself, the reps still have to work harder because there’s less money to chase. That means they’re willing to cut deals with CIOs facing decimated budgets. The balance of power has shifted. The vendors need the CIOs (and their money) more than the CIOs need new hardware and software.

Now that the northern hemisphere is tilted toward the sun (at least in the northern latitudes), let us be of good cheer. The business world is, on aggregate, poorer now, no doubt. But it is probably saner too. And so, in all likelihood, are you.