The Long Legs of the Crash: 13 Unexpected Consequences of the Financial Crisis
Last year had more than its share of vertigo-inducing headlines: major banks suddenly disappearing, the Dow plunging day after day, and billion-dollar bailouts failing to make a dent in the worst financial crisis since the Great Depression.
Already, the Wall Street way of life seems to have gone the way of the dodo. An entire country -- are you reading this, Iceland? -- went belly up overnight. And good luck if your last job title was "mortgage-backed securities trader." But if there are some predictable economic hardships we can expect from the current crisis, there are also some trickle-down effects that aren’t so foreseeable. Here, 13 surprising consequences of the crash:
Already, the Wall Street way of life seems to have gone the way of the dodo. An entire country — are you reading this, Iceland? — went belly up overnight. And good luck if your last job title was "mortgage-backed securities trader." But if there are some predictable economic hardships we can expect from the current crisis, there are also some trickle-down effects that aren’t so foreseeable. Here, 13 surprising consequences of the crash:
1 Your government will get smarter… In a global recession, governments around the globe will be able to recruit a better class of bureaucrats. Just a few years ago, the U.S. government had serious recruitment problems in the Foreign Service because no world-savvy 25-year-olds wanted to work for the civil service when they could make serious cash on Wall Street. In a severe downturn, however, the stability and security of a government job look far more appealing.
2 … and more corrupt. Politicians’ palms are about to get greasier. A global downturn shrinks the demand for goods and services worldwide. That means the security of a government contract will look pretty sweet to any businessperson struggling to stay afloat. A January report from Transparency International warned that corruption is bound to increase worldwide during the current crisis, as businesses prioritize survival over corporate integrity.
3 Gray skies are gonna clear up (at least a little). The central factor in projections about global warming is long-term extrapolations of current economic growth. Thing is, I doubt the Intergovernmental Panel on Climate Change expected Wall Street to tank as spectacularly as it has. The longer the global economy stays in recession, the less greenhouse gases are emitted into the atmosphere. You still might not be able to breathe easy in Beijing, but your odds just got better.
4 The Internet is about to get a lot more #@%$ing annoying. Newspapers are looking to online advertising revenue to deliver them from bankruptcy court (and eventually, total eradication). So, expect more Web advertising on your news sources — pop-up ads, welcome screens, articles hacked into ever shorter segments to maximize clicks — that cannot be escaped easily. Or at least not without getting extremely frustrated.
5 Glory days for evangelicals. Bad times are boon times for evangelical churches. Economist David Beckworth of Texas State University has crunched U.S. church attendance numbers and found that congregation growth at evangelical churches jumped 50 percent during each recession between 1968 and 2004.
6 Your kids will be savers. Macroeconomic realities in your childhood have a profound effect on your financial choices later in life, regardless of how much money you make, according to a study by economists Ulrike Malmendier and Stefan Nagel of the University of California, Berkeley, and Stanford University, respectively. The generation that grew up during the Great Depression, for example, was more risk-averse than its parents and its children when it came to money. Your kids, in other words, won’t be addicted to E*Trade, but you’ll probably find their allowances stuffed under their mattresses.
7 Skirts will get longer. Here’s a piece of Wall Street folk wisdom: There is a rough correlation between bull markets and bare knees. During boom times, skirts get shorter. In these bearish times, prepare for hemlines to head south. Somewhat in relation, we’ll see something else go north: the age and weight of Playboy centerfolds. Evolutionary biology encourages people to seek "more mature" mates during times of economic insecurity, argue Terry F. Pettijohn and Brian J. Jungeberg in one of the more interesting studies published recently in the Personality and Social Psychology Bulletin. To support their claim, the researchers showed that during recessions, centerfolds get older and, well, rounder. Similar studies have confirmed an identical trend in movie comedies — male and female leads get older during recessions.
8 Your military just got bigger. The age group that will be hit hardest by the current downturn? The world’s 18- to 24-year-olds. This group just so happens to be the prime recruiting age bracket for militaries, which can generally offer a steady paycheck and decent benefits. Indeed, the U.S. Army exceeded its recruitment goals in the last three months of 2008 for the first time in 5 years. And as the war in Iraq winds down, these new soldiers’ fears of being deployed in a hostile combat environment should wane. The few and the proud might grow into the many and the desperate.
9 State schools will be cool. A prolonged downturn will profoundly affect institutions of higher learning. For the past decade, private schools far outpaced state schools in terms of resources and expenditures as their endowments swelled from the long financial boom. Many elite universities followed Harvard’s lead and adopted need-blind admissions with generous financial-aid packages.
That’s all about to change. Endowments in the United States have declined 10 to 30 percent during the past year, which will make need-blind admissions a thing of the past and financial-aid offers far less generous. The credit crunch will also make it more difficult for young people to secure reasonable student loans.
10 Boomers will refuse to leave the building. A whole tier of older employees who planned on retiring now or in a few years simply can’t — their 401(k) retirement accounts look way too scary. In 2008 alone, U.S. workers aged 55 to 64 who have had 401(k)s for at least 20 years saw their retirement balances drop an average of 20 percent. This means those who expected promotions when the boomers cleared out are going to have to stew in their own juices and gripe around the water cooler. Office politics just got a lot nastier.
11 The world is no longer flat — and fewer people will care. Global downturns often breed protectionism and other barriers to foreigners. Cross-border tourism is likely to plummet. Study-abroad programs will also be affected — the New York Times recently reported a dramatic decline in South Koreans studying overseas. News outlets are also likely to further scale back their foreign news bureaus to cut costs.
12 Nouriel Roubini’s frequent flyer miles will go through the roof. One business will be big this year: conferences on the crisis of capitalism. The Dr. Dooms and Cassandras of the most recent bubble era — economists such as Nouriel Roubini, Robert Shiller, Stephen Roach, and Joseph Stiglitz — will be doling out advice and "I told you sos" in convention halls and conference rooms around the globe. Indeed, in the month of January alone, Roubini traveled to Istanbul, Dubai, Abu Dhabi, London, Riyadh, Zurich, Davos, and Moscow. The likely difference now? Seats in coach.
13 Great Depression lit will be chic. Eras like to mine the cultural tropes of analogous eras from the past. So, expect books about the Great Depression to dominate Amazon rankings. Already, Hodding Carter IV has received a big advance to write A Year of Living Within Our Means, a book about his family living strictly within its budget by using cost-cutting measures from the 1930s. And somewhere, you just know Ken Burns is making a 25-part documentary on the Tom Joads of this world.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
More from Foreign Policy
Can Russia Get Used to Being China’s Little Brother?
The power dynamic between Beijing and Moscow has switched dramatically.
Xi and Putin Have the Most Consequential Undeclared Alliance in the World
It’s become more important than Washington’s official alliances today.
It’s a New Great Game. Again.
Across Central Asia, Russia’s brand is tainted by Ukraine, China’s got challenges, and Washington senses another opening.
Iraqi Kurdistan’s House of Cards Is Collapsing
The region once seemed a bright spot in the disorder unleashed by U.S. regime change. Today, things look bleak.