How to Thrive in a Stagnant Economy

12 ways to get ahead, even if the economy’s in neutral

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There's a great debate about the great stagnation.

Are we at the beginning of it, or the middle? Will it last for a decade or two, as in Japan, or might we get off easier? Most importantly, is there anything we can do about it? As with many economic questions, we won't know many of the answers until it's over. But it's a good bet that the sluggish economy we've got now will be with us for a while. Consulting firm McKinsey predicts that the "jobless recovery" will last another five years or so. Economists Carmen Reinhart and Kenneth Rogoff, co-authors of This Time Is Different: Eight Centuries of Financial Folly, argue that high levels of government and private debt, such as the United States and Europe bear now, squelch growth and generate a period of stagnation that can last a decade or more.

[See 12 Ways to Thrive in a Stagnant Economy.]

Economists and investors have cranked up their computer models recently to figure out all the implications of prolonged stagnation. Basically, it amounts to more of what we've already got: chronic joblessness, a sunken housing market, suppressed spending and a bunker mentality among consumers and businesses. Inflation might become a worry, if the economy were to heat up, but in the meantime, deflation may be a bigger risk.

Stagnation, however, need not be disastrous. Individual consumers can't do anything about the overall economy, but they can take advantage of this pause in growth to shore up their own finances and make themselves more competitive. Here are 12 ways to get ahead, even if the economy's stuck in neutral:

Pay down debt. Even if your finances are in good shape, it can be a shrewd money move to accelerate payments on your mortgage, car loan or any other type of balance. With savings rates close to zero, the stock market volatile and even commodities like gold yo-yoing in value, many investors are playing it safe and keeping their money in high-grade bonds or cash. But if you're paying 6 percent interest on a car loan, say, then paying down the balance on that will have a better return than investing the same amount of money in a Treasury bond paying 2 or 3 percent. It will also leave you with stronger finances once other types of investments seem like a safer bet.

[See 5 ways to beat new bank fees.]

Think like a CEO. In a recent report, Boston Consulting Group argued that businesses should prepare for a turbulent economy by developing an "early-warning system" that helps identify a crisis early, and by "weatherproofing" their companies--shoring up areas that fare worst during a crisis. Ordinary people can do the same thing, using the 2007 – 2009 recession as a guide. An early-warning system might entail pay or benefit cuts or other tips that signal companies are tightening up, and possible trouble lies ahead. Many families can weatherproof their finances by building up a rainy-day fund, paying off credit-card balances and living frugally during good times, so it's less of a shock when tougher times make cutbacks necessary.

Lower your breakeven point. Many companies have been slashing costs so they're able to compete in a more austere environment. Individuals and families can do the same thing. Cutting expenses, limiting impulse buys, stretching out the life of your car and refinancing your mortgage are all ways to lower your personal "operating costs," which will pay off if you suddenly need to get by on less. Economist Tyler Cowen, author of The Great Stagnationsuggests permanently replacing expensive hobbies with cheaper ones, like playing online computer games or renting movies. "It's a nice, robust way of consuming something you won't have to give up if things get bad," he says. And if tough times never hit, you'll still free up money to invest or put to better use.

[See how to escape the middle-class squeeze.]

Buy low. When people are worried about money, there's a strong impulse to hoard it. But a downturn is often the best time to invest—if you have the resources--since fear keeps other buyers on the sidelines and pushes prices down. A well-timed investment doesn't need to involve stocks or bonds. It might be discounted equipment for a small business, a foreclosed property, or education that will enhance your ability to earn money. When making any kind of investment in a tumultuous environment, stick with what you know, so you can judge value effectively. And remember that it's only an investment if it brings some return, above its cost, in the future; otherwise, it's just a purchase.

Cross-train. In a recent issue of the Harvard Business Review, three executives from leader-development consultancy Zenger Folkman argue that it's better to spend scarce time learning a new skill than building on a skill you already have. "If you're technically adept," they write, "delving even more deeply into technical manuals won't get you nearly as far as honing a complementary skill such as communication, which will make your expertise more apparent and accessible to your co-workers." This kind of professional "cross-training," they say, helps build new strengths instead of merely improving on known weaknesses. Other research has shown that people with two or three skill sets, not surprisingly, tend to be more successful than those with just one.

[See 10 states that are losing business.]

Make yourself mobile. One powerful workplace trend is the shift away from fixed offices—or even fixed employment—with companies relying far more on free agents able to travel, move, and log in during odd hours, to help handle overseas business, for example. Carl Camden, CEO of the employment firm Kelly Services, call this kind of work "fractional employment" and predicts it could account for 50 percent of the workforce within 10 years. No matter how unappealing this disjointed style of work might sound, it's clearly an advantage to be agile and flexible. So it will help if you've got modern phone and computer equipment at home, you can work in any time zone and you're not chained to an underwater property.

Do something for free. If you're out of work or underemployed—or even if you're not—consider doing some work you might not get paid for, kind of like a senior intern. It can be volunteer work, but also consider doing something professional in a field that's a step or two removed from what you ordinarily do, to learn something new without making a huge commitment to it. This can be a way to meet new contacts, develop new skills and build goodwill that could pay off later. Unpaid jobs sometimes lead to paying ones, and getting out of your regular field might teach new things you can apply back at the office, or at home.

[See how politicians are wrecking the economy.]

Get technical. It's hard to find a business that's not likely to be affected by the digital revolution, and that affects workers everywhere. "You need to ask yourself, do I have skills complemented by computers and the Internet?" says Cowen"If not, you're probably going to have a tough time." Companies increasingly want workers who understand social media, Web programming or other types of technology, even if that's not their primary occupation. Job-search site Indeed.com says all of the top 10 job trends it has noted recently involve technology—ranging from mobile apps to cloud computing to virtualization. It helps to have formal training in such things, but you can also learn a lot on your own just by jumping in and getting started.

Know your vulnerabilities. The economy changes faster than ever these days and more change is coming. One development that seems certain is a long-term reduction in government spending at all levels. So if you're a government employee or you're dependent in some way on government spending, make backup plans. Taxes are also likely to go up eventually, taking a bigger bite out of take-home pay and threatening workers living on the edge. If your company seems to be struggling or your industry is in decline, don't expect everything to work out. Companies can and do go bust--as former employees of Borders and Blockbuster can attest.

Position yourself for success. McKinsey predicts that most job growth over the next decade will come in six fields: health care, business services, leisure and hospitality, construction, manufacturing, and retail. If you're in one of those industries, don't take success for granted; make sure you've got the right skills and you're in the right place to capitalize on opportunity. Obviously it's possible to get ahead in other fields, but it's well worth assessing whether you're in a growing or shrinking industry--and switching to a field with more opportunity if you feel the sun setting on your current field, or your company.

[See 11 countries with worse problems than America.]

Rebuild your personal infrastructure. Harvard Business School professor Rosabeth Moss Kanter says that uncertain times present a good opportunity to tackle maintenance and repair, for companies as well as individuals. "Uncertainty makes it tempting to let things deteriorate," she writes. "But fixing things that can be improved represents productive action." That might mean working out more to get in shape, digitizing years' worth of paper records, or tackling projects you'll never have time for when business picks up or life gets busier.

Forget about status. One reason we buy a lot of stuff we don't really need is to prove something to ourselves, or to others. But that can be self-defeating if the high cost of status causes financial or emotional stress. "Status is the enemy of contentment," says career coach Marty Nemko. "It costs a fortune and yields little real benefit." Once you stop trying to impress the neighbors, your purchase decisions will get easier, and you'll probably save more. You might even notice that prosperity, suddenly, seems closer than you ever realized.

Twitter: @rickjnewman

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