I think most libertarians and Austrian school economics followers believe that we are in for some tough economic times ahead.  Some are more pessimistic than others.  Some are just doomsdayers.

I find it fascinating how much libertarians underestimate the ability of the free market, or what is left of it.  Despite the massive regulation and government spending, we still thrive.  In many ways, we are richer now than in any time in history.

Our current economic times seem a bit contradictory.  In comparison to an American family in the 1950s, it is tougher in some senses today.  Our healthcare is definitely far more expensive.

Overall, I think we are still better off.  We have more choices than ever before, whether we are talking about food at a grocery store or shoes in a shoe store.

Of course, electronics are great.  How can we even compare ourselves to the people living in the 1950s when we have a handheld computer (smartphone) that gives us instant contact with others and instant information?

There are many problems we face today.  In the U.S., we have a huge national government debt.  But this is little in comparison to the unfunded liabilities of Medicare, Medicaid, and Social Security.  Some estimates put the unfunded liabilities over $200 trillion, which obviously can never be paid out.  There is going to be some kind of a default, even if it means just raising the government retirement age to 75.

While the unfunded liabilities creep up on us, an even more imminent threat is the misallocation of resources that has happened just over the last 7 years.  The Fed has given us huge monetary inflation that hasn’t translated into huge price inflation because much of the new money went into bank reserves.  We have also had extremely low interest rates, which just discourages savings and investment.

We can’t be sure how all of this is going to come together and play out.

I do not share the view that many libertarians do that we are going to have anything close to hyperinflation.  Maybe we will get double-digit price inflation at some point, but I’m not even sure of this.

I think your biggest threat is the loss of a job, or even a big pay decrease.  That is why it is important to have marketable skills.  There will be some business owners who end up in bankruptcy too, but that happens frequently enough without recessions.

In some ways, a recession will actually be a relief for some people, especially if they can hang onto their jobs.

I think back to around 2006, at the height of the housing bubble.  While it seemed like a party time, and it certainly was for some, I believe a lot of families were staying quiet about the tough times they were having.

I can picture a family that bought a house, struggling to pay the bills each month.  They keep asking themselves, “Why are we having trouble making ends meet?  Everyone else seems to be doing great, so I am just going to keep my mouth shut and pretend that I’m doing great too.”

There were also families that were renting or living in a smaller house, wondering how they could afford to move up.  There was a lot of anxiety about getting a house at the time, before prices went up even more, or so most people thought.  Looking back, the ones that didn’t buy a house were fortunate.

I get a similar sense now as in 2006.  It is not so much in housing, even though prices have gone back up to some degree.  I suppose people living in California – particularly certain areas such as Silicon Valley – may be feeling something similar to what most of the country was feeling ten years ago.  But even overall, I get a sense that middle class families are struggling now.

If you can keep your job in a major recession, you may actually benefit from the recession.  The reason is that it is a correction for the past mistakes.  It is a reallocation of resources into areas that actually meet market demand.  This is under the assumption that the Fed and government don’t intervene too much, which I know is a big assumption.

But even if there is major intervention, the correction still takes place to a certain degree.  People reduce spending, pay down debt if they can, and they save if they can.  The reduction in spending tends to reduce prices, thus alleviating some of the hard times for many.  It is even more ideal if local governments are forced to cut spending due to the reduction of tax collections.

I am not trying to cheer on a recession, as I know that a lot of people get hurt.  They are painful.  But if the recession is inevitable, it is better to get it over with.  The longer it takes, the worse it will generally be.  And the many millions of families that are struggling now actually need the relief.

Again, I believe the biggest threat is a job loss.  This should really be your number one investment.  You need to invest in yourself to make sure that you are needed.  You need marketable skills that are valued, even in a tough economy.

Your investments are important too, but your number one goal here is to protect what you already have.  You want them to serve as a reserve for when we do have an economic downturn.

In addition, if you have some money on the sidelines and we hit a major recession, that is where you can make a lot of money.  That is when you get the bargains, whether it is in real estate, stocks, commodities, or something else.  People who were able to buy investment real estate around 2010/ 2011 have done very well.

In conclusion, you will survive the economic turmoil ahead.  The most important thing is to have the skills to bring in income.  It is great if you can have multiple streams of income.

If you rely on the government for a lot of your income, you would be wise to find a backup plan.  At some point, even the federal government may be forced to scale back a lot.  That would be a true correction.