The media smells blood in the water.

With the frenzy surrounding a possible recession, the causes, and what the government should or should not do, listening to professional and academic economists is probably a good idea. (Personal finance bloggers’ commentary is also summarized below)

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Economists tend to agree that we are in or are heading into a correction, recession, or economic downturn. But, they disagree as to whether the recession or downturn change will be severe or even a big deal.

Some economists argue recessions are a normal, inseparable element of capitalism. Others, like George Reisman, believe the primary cause of recessions, especially serious ones, is government intervention.

You might be surprised to learn that a popular definition for a recession is simply a period where the “real gross national product (GNP) has declined for at least two consecutive quarters.” Obviously, producing less is rarely a good thing, but a slight drop in production is hardly the harbinger of another depression!

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Either way, the past century has seen large income gains and huge standard of living gains, so a little correction should not be too uncomfortable. Although almost everyone is individually doing well, apparently most people think everyone else is on the verge of financial ruin. Perhaps this belief is why congress is so motivated to act.

Some economists are concerned that the government’s response might be worse than the problem. Caution may be in order. Unfortunately, people seem to want the government to do something and November’s elections are just around the corner, guaranteeing the “stimulus package”.

Although many economists have come out against government action, not all attempts at economic stimulation are equal, effective, safe, or even work. A much wiser approach would be for the government to focus on policies that lead to growth over time.

Where is the sense in putting off positive reforms for a rainy day? “If a spending increase or tax cut isn’t worthwhile on its own merits then it’s highly unlikely to be worthwhile once we add in the benefits of ’stimulus’.”

How the recession and stimulus plan will affect you

For now, the recession will have little effect on most workers. Unemployment is at historical lows and more people than ever before have joined the middle and upper classes. Luxuries unimaginable to previous generations are now so common that they are taken for granted.

The stimulation package will affect people differently depending on their age and how they use the rebate. Since the tax rebate is being funded by more debt instead of a reduction in spending, the rebate is essentially a wealth transfer from future tax payers to us.

The money has to come from somewhere and our government’s debts will need to be repaid someday. If you are a younger worker or have children, you might want to think twice before frivolously spending your rebate check.

While rebates will likely have little to no impact on the economy, your decision to spend or save will play a large role in your personal situation. For example, a $1,200 rebate applied in the first year of a $200k, 6% mortgage could could trim five months of payments and save you almost $6,000.

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The personal finance blogging community has seen explosive growth in recent years. Personal finance bloggers tend to be prolific, often finding great tools like the rebate calculator Consumerism Commentary located. They also tend to be very open about their personal situations—both what has worked and the financial decisions that haven’t.

Many of the bloggers first look to their readers for answers before offering their own solutions. Some bloggers, however, are openly skeptical about a recession, stimulus, or government intervention. And now, the Canadian bloggers are even joining in the speculation!

Other bloggers are using polls to gauge readers’ opinions, no matter how crazy the opinions are. One of Joseph Sangel’s readers actually accused him of starting the recession!

Everyone seems to have advice on how to best use your rebate check. The advice ranges from smart & stupid ways to the bloggers’ personal strategies to best use their rebates.

Some posts address specific questions, while others take more of an analytical overview approach to the recession and stimulus package details.

Finally, many bloggers have avoided the topic, only offering a few quick thoughts that aren’t necessarily negative.

Perhaps the briefer posts inspired some of the proactive posts that offer advice on minimizing your exposure to recessions and hedging your bets just encase you become collateral damage.

For further reading about the “recession” and stimulus, check out The Hamilton Project’s If, When, How: A Primer on Fiscal Stimulus pamphlet. Or explore the personal finance blogs below.

To learn more about economics, explore the links above or read Russell Roberts’ excellent short novels on free trade and economics.

This article was first featured in the Carnival of Personal Finance hosted by Broke Grad Student and later appeared in the premier edition of Financial Tips Carnival hosted by Financial Tips.

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Do you know that feeling of anticipation, when you hold a new book, knowing full well it will be a joy to read from start to finish?

Russell Roberts has managed to craft another such a gem. But The Invisible Heart is more than a good story, it’s a love letter about economic freedom.

Roberts has a knack for making economic lessons accessible, even fun to read. In his first book The Choice: A Fable of Free Trade and Protectionism he made the case for trade.

With The Invisible Heart, Roberts pioneers a new genre, the economic romance. The story features an unlikely pair; a couple so unlikely, that the ending remains a surprise up till the end.

Invisible Heart features more plot turns than Roberts’ first book, but still contains plenty of his trademark dialog. In fact, the only way economics instructor Sam and idealist co-worker Laura might have a chance together is through many deep discussions.

Many of their discussions involve Sam defending his profession. Laura sees businesses as greedy and economists, like Sam, as their stooges. Instead, Sam explains that he loves freedom and he has little to no faith that the government can improve life through regulation (restricting freedom).

As their relationship progresses, Sam has the opportunity to dispel many common myths about the dismal science, and the dangers of government intervention.

The Invisible Heart is an exciting story full of rich dialog. Sam’s arguments might not convince everyone about the free market’s advantages. But all readers will better understand the dangers of government intervention and why some people prefer to let the market work.

You can learn more about economics at Russell Roberts’ homepage, or at Cafe Hayek where he blogs. He also hosts a regular “economics podcast for daily life” called EconTalk. The Invisible Heart is available at Amazon.com and sample chapters of his books are available.

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When is a book more than a book? Occasionally a book comes along with an idea so powerful, so simple that it threatens to transform the world.

Russell Roberts’ The Choice: A Fable of Free Trade and Protectionism is more than a book.

Roberts offers us a glimpse of a different America, an America free from foreign competition. A poorer America because it shunned trade. This alternative history is particularly relevant today as members of the media and politicians are all too happy to promote the idea that foreign countries like China are stealing our jobs.

Instead, Roberts shows readers how trade does not affect the number of jobs, instead it affects the types of jobs people work. Fortunately for us, one of the main characters is resistant to the idea.

This resistance to change provides the premise for the story. Ed Johnson, CEO of the Stellar Television Company is facing increased competition from lower priced Japanese televisions. Johnson is a generous man who wants to see his employees protected. His solution is a tariff on Japanese televisions.

In 1960, the tariff passes and employees of the Stellar Television Company continue to prosper. But this tax puts American down a dangerous path and it’s up to nineteenth-century economist David Ricardo to show Ed why (and to earn his heavenly wings in the process).

Their discussions range from outsourcing to tariffs to trade deficits and whether globalization helps the poor.

Roberts view of trade is anything but naive. Sometimes a few people are made worse off when their job moves overseas, but most people’s lives are enriched. The foreign worker now has a job much better than what was available before. Everyone now has access to a more affordable product. And the displaced worker is freed to pursue other opportunities that might pay more or be more rewarding.

Ultimately, the next generation has more money and more choices that were simply unimaginable when the jobs initially moved.

The Choice is a wonderful little book full of powerful examples that will help you better understand the benefits of trade. A clearer understanding is important today as free societies are faced with the choice between allowing people to make mutually beneficial transactions or protecting the incomes of a few at the expense of many.

You can learn more about the benefits of trade at Russell Roberts’ homepage, or at Cafe Hayek where he blogs. He also hosts a regular “economics podcast for daily life” called EconTalk. The Choice is available at Amazon.com and sample chapters of his books are available.

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Financial success is possible, likely, even inevitable for people who work hard and make the right decisions (it also helps to live in a free country).

So what is financial success?

If we asked 100 different people to define success, we’d hear just as many different definitions. Financial success is no different. Our personal definitions call for varying levels of wealth, but there are several key similarities.

Financial success is:

• increasingly common
• provides security
• encourages opportunities
• good for everyone

Financial success is about freeing yourself from the paycheck to paycheck lifestyle. Building wealth and eliminating debt frees you to make decisions based on what is best for your family or simply based on what you want.

When people make decisions based on what is best for them, everyone benefits. How’s that, you ask? Economists have long understood that financial success is not a zero sum game—your neighbor does not have to lose money in order for your to earn more.

Everyone benefits

Instead, people voluntarily exchange their labor or their creations for something they value more. Both parties benefit. For example, let’s look at the relationship you have with your employer.

You value your time and we can put a number to this value. You’ve agreed to work a certain number of hours for your salary. Now, you could decide to do something else with your time, but for the moment, you are willing to trade your labor for your current salary.

From the employer’s perspective, they are getting more out of this relationship than your stated salary. Your employer takes your labor and combines it with the labor of other employees.

This pooled labor combined with intellectual or mechanical assets allows the business to create something worth far more than the sum of the employees’ salaries.

What financial success requires

In the end, financial success depends on our savvy use of our time, intelligence, and our assets. Much like your employer, you need to evaluate the impact of your personal and financial decisions.

Financial success does not necessarily require that you deprive yourself, but it does demand that you remain conscious of the tradeoffs you are making.

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