Is anything good happening?

Gary Silver · October 9, 2008 · Short URL:

A fundamental view of the hill

 This perspective will likely be unpopular here, and while I'm reluctant to say it, I feel I must.

There is no doubt that the downturn hurts everyone now, from the pinnacle of the economic hill to the base.  I don't need to elaborate on how the credit crunch and unemployment hurts the bottom on up, and falling asset values hurts the top on down.  As an entrepreneur in need of startup capital (and personal assets suffering, like everyone else from the middle of the hill on up), there is no personal consolation. 

But is there possibly anything good that can come of this in the long and wide view?  Taking a step back and looking at the hill in a more long-term/historical and altruistic perspective, there is a relative and necessary economic readjustment going on here that contains societal benefit.

While we all want to be able to preserve what we've earned and saved, and share it with our loved ones and heirs, it has been well understood and ignored for a long time that the rich have been getting richer and the poor poorer. 

As an entrepreneur designing a compensation plan for salespeople, one goal is to balance the commissions earned for closing an account between incentives and rewards for current effort expended vs. residual commissions from recurring account revenue.  While it is reasonable to reward both, in all fairness to the company's ongoing customer support and product development efforts, and to keep the salesperson "in the game", it is desirable to incent and reward current efforts in signing new business in significantly greater proportion than to enable the salesperson "living off his accounts", resting on his laurels.

Before the current real estate slide, as much as I personally enjoyed and depended on rising real estate values, at the same time I wondered how on earth my children and my children's children will be able to afford a house if real estate prices continuously inflate faster than earnings?  Well, maybe my growing investments would allow me to help them out.   But what hope do those who are at the bottom of the hill have, or those who have many children? 

How frustrating it must be at the base of the hill to work hard, day in and day out, and your relative standard of living continues to shrink compared to those who can depend on a much greater proportion of their standard of living coming from rising asset values and passive investments?  How does the average hardworking Joe starting at a disadvantage ever get a fair shot at getting ahead on earned income?  Would the base of the hill be able to afford their own home tomorrow?  My egalitarian sensibilities were deeply concerned.

In the long-term, the result of this relative readjustment will allow the bottom of the hill a chance to catch up, making them relatively less poor and the rich less rich, as real estate remains in check.  It's too bad it couldn't have been accomplished in a more organized, less painful way (and I'm referring to market adjustments, not taxes).  This is NOT the way it should have happened, and certainly the repercussions are dire, but the economic hill has been squished to the relative benefit of those at the bottom, and it was arguably overdue.  But for today, the whole hill is suffering in a way that would have better been avoided.

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