Holes in Our Socks

Why it's so hard to predict how bad the recession will be.

By Tim Harford

Right about now, most businesses are trying to work out how their customers are likely to respond to the recession. Looking back to the last really nasty recession—the early 1980s—isn't much help for low-cost airlines, cell-phone companies, Internet retailers, producers of organic and fair-trade food, and many other businesses barely imagined at the dawn of the Reagan era. The economy has simply changed too much since then for experience to be a reliable guide.

In the United Kingdom, we are blessed with tabloid newspapers to explain what's going on. Apparently, sales of aphrodisiacs are up, and so are sales of maternity dresses: Not everything slumps downward in tough times, it seems. Elle MacPherson's underwear is said to be doing well; so, too, is a budget store called Poundland. Some stories are frankly bizarre: The crunch is alleged to have given a fillip to sales of cake, wooden "gravestones," musicals, and feel-good films. The quality press has not resisted the temptation to join in the guessing game: My own newspaper, the Financial Times, found evidence that physiotherapists were in demand to perk up stressed investment bankers.

All this speculation is an engaging diversion, but it tells us little. Even the more solid reports are often based on anecdotes; many are simply spin or wishful thinking. I've heard a food retailer muse that fair-trade-branded goods are recession-proof because once people have seen the light about the importance of fair trade, they never turn back. A travel industry expert told me that the worse things get, the more people feel in need of a vacation. Perhaps he is right. I would not bet on it.

http://www.slate.com/id/2205562/