Who Wins from the Credit Crunch?

Remember that old adage that the Chinese symbol for crisis means “danger” and “opportunity?” The press is reporting plenty about the people in danger, but what about the opportunity in this mess of a credit crunch? Who benefits?

One obvious group are people sitting on cash reserves. It’s an excellent time to buy property and undervalued stock.

Then, Dean Baker pointed out another (surprising) group–young workers:

I’m waiting to see a reporter write this story, but I’m not holding my breath. The basic point is simple, given a path of future profits, if the stock market is high, it will cost our children and grandchildren much more money to buy a certain share of these future profits than if the market is low. In other words, if the S&P is at 1000, then our children will get much higher returns on their savings than if the S&P is 2000. (There is very little feedback the other way — stock prices have little impact on profit growth– so the assumption that the growth path of profits is independent of stock prices is probably a reasonable one.)

So, the young people out there should be celebrating the plunge in the stock market, except for the relatively small group who were anticipating inheritances from their parents. You can’t please everyone.

I’m relatively young (I’m not sure what age bracket Dean is referring to). I’m not exactly celebrating the stock market. I don’t like losing money that I’m not sure I’ll earn back. There’s a certain cynicism among young people today that they’ll never earn as much as the previous generation, due mostly to stagflation and fewer jobs.

The post-Depression corporate ladder meme is pretty much busted; the only way to get ahead, it seems, is to run your own successful business or get really good at investing. Neither are easy, or meant for everyone.

I see your point, Dean, but I ain’t celebrating.