Why the Recession Is Good for Us

"Sometimes it takes a challenge to find out what you're made of," he continued, and I was eating it up. "Americans are not afraid to work."

This last statement stopped me... Is that really true? Do we still have a work ethic back in the States?

I thought about how, for the for the first time in American history, the life expectancy of an American might actually be going down, thanks to bad eating and lack of exercise. And I thought about all the reality television in the States, celebrity meltdowns, video games...

I wondered if Americans are willing to work as hard as he believed.

Then I thought of it from his perspective...

"We had a bloke pick up a computer off a desk and throw it at a window," my friend told me. "But thanks to English law, we still couldn't sack the guy for weeks."

He says it's incredibly difficult to fire someone in England. Worst of all, the employees know it. This causes two problems...

First, English companies are afraid to take risks. They're afraid to be entrepreneurial. If they have a business idea that requires 10 employees to try, they might not try it, simply because they can't fire the 10 guys if it doesn't work.

Second, since the employees know they're not at risk, they can be lazy – really lazy. Apathy kicks in around the office if you know you can't be fired. You just clock in and clock out. It's like lifetime employment, with the government insuring your job. As he explains it, it sounds terrible... It's sounds like the UKSR... the United Kingdom of Socialist Republics.

In order to keep up a socialist republic, a government must have an insatiable appetite for money...

The big news in England this week was British Chancellor Alistair Darling's tax hikes. Taxes are up on the easiest things to raise taxes on: booze, cigarettes, and pollutants. What legislator is really going to stand up and argue against those?

Now, if you buy a new Volvo XC90 in England, you'll have to pay an additional $1,900 in tax. If you buy a beer or a bottle of wine, taxes are up. And a pack of smokes will cost you more in taxes, too. I don't smoke or drive a Volvo, and I hardly drink. But I still think these are ridiculous – particularly considering that the Brits are already heavily taxed. Already, a gallon of gas in Britain is about $8. Eight dollars a gallon!

In the eyes of Brits, America is still the Land of Opportunity. While Americans might think that government gets in the way of business, it is nothing like it is in the U.K. and the rest of Europe. Our businesses are set up to encourage entrepreneurship. And while we think we're heavily taxed, our burden isn't as bad as it is in the U.K.

I hope my friend is right... America provides opportunity, and sometimes it takes being challenged to find out what you're made of.

As we experience these tough times, I do know two things:

1) In order to have the freedom to get rich, you have to have the risk of getting poor. So you can't forget that booms and busts are a natural part of having a dynamic, growing economy. We had a real estate boom. Now we have the bust.

With the exception of the Great Depression, our economic system has proven to generate more wealth across the board over time than any other system. The recession now may be painful, but it is a part of the right system.

2) Stock prices can do extremely well in a recession. As I reported in the February 12 DailyWealth, stocks generally bottom about halfway into a recession. The average fall is typically about 19%. If this recession follows a typical pattern, stocks could bottom by this summer. Then you really can make a heck of a lot of money!

(Stocks may have actually bottomed this week... This week felt like the bottom we saw in August 2007, when an enormous amount of fear gripped the market before the Fed came in and saved the day.)

Things may look bad... but even compared to England, we've got things pretty darn good.

Remember, recessions are a normal part of our dynamic economic system. And also remember, you can make a lot of money buying stocks as the recession bottoms. Based on historical averages, the time to really start buying stocks could be here soon.

Recession is tough... but it is better than the alternatives you'll find in much of the world, where closet-socialist governments spend enormous amounts of taxpayer money trying to protect people from themselves.

Thanks to our system, as my friend said, we Americans will come out of this mess just fine...

Good investing,

Steve

P.S. One other news tidbit from here this week... Someone tried to sue Marks & Spencer, the English grocery store, for $600,000. Apparently, some guy slipped on a grape in the Marks & Spencer parking lot, and the evidence was on his shoe.

Unlike in America, where this guy might get his money, the English judge dismissed the case. He ruled that it could have happened to anyone, and the guy didn't get a dime. Why can't we have more of that in the States?