The Differences Between Today and 2008

In a very insightful article ("Why This Crisis Differs from the 2008 Version"), Francesco Guerrera, editor of The Wall Street Journal's Money & Investing section, argues that the spectacle in the stock markets resulting from the S&P downgrade is unlikely to send the U.S. back into the financial shock it experienced in 2008. While there are certain similarities, there are also very distinct differences in the conditions surrounding the current economic weakness.

As Guerrera points out, the crisis in 2008 stemmed from a financial breakdown from the ground up. "The current predicament," he writes, "by contrast, is a top-down affair. Governments around the world, unable to stimulate their economies and get their houses in order, have gradually lost the trust of the business and financial communities." Another fundamental difference is debt. In 2008, both companies and consumers carried a disproportionate amount of debt as a result of "cheap credit." "When the bubble burst, the resulting crash diet of deleveraging caused a massive recessionary shock," Guerrera comments. "This time around, the problem is the opposite. The economic doldrums are prompting companies and individuals to stash their cash away and steer clear of debt, resulting in anemic consumption and investment growth."

Another key difference is the bailouts. In 2008, the U.S. government (along with governments around the globe) was forced to step in to shore up the financial system and keep large corporate entities afloat. Today, financial instability is not the issue. Rather, says Guerrera, "The real issue is a chronic lack of confidence by financial actors in one another and their governments' ability to kick-start economic growth." In his opinion, the solution to our current economic condition will need to come via political steps to stimulate growth, and from investors who are able to see more opportunity than risk in a weak market.

In my opinion, this is also the solution for the construction economy. Meaningful federal investment in infrastructure – in the form of federal highway funding legislation and like programs – is vital to shore up an industry that continues to see unemployment levels in the double digits. And the market's willingness to invest in manufacturing and commercial development is essential to shoring up privately funded construction activity.

The need to maintain pressure on legislators to stimulate economic growth, and thus shore up investor and consumer confidence, has never been greater for our industry. The construction economy is at a tipping point, particularly now that federal stimulus funds have dried up. Further U.S. economic weakness could drive our industry backward into the depression-like conditions it's weathered since 2008. Keep the pressure on by contacting your political representatives at www.usa.gov. Don't let political divisiveness and election-era politics curtail construction's future.

Loading