View Full Version : Is recession natural?
I just posted a link on the NRM facebook page (http://www.facebook.com/#!/pages/Financial-IntegrityNew-Road-Map-Foundation/197551060291937) to a thought-provoking article about the nature of recession. We'd love to get a discussion going and see what people think about the author's view that recession is part of the "natural cycle" of the economy. Anybody?
Thanks,
Helen
Well, Helen, as someone who does not want to do Facebook at all, it took some effort to find the article amidst all the other postings. very confusing!
Having said that, it is a credible philosophical approach that times of recession bring inflation back under control and should be considered part of the normal economic cycle. However, governments of all kinds keep interfering with the economic cycle because economists who are largely in control keep insisting that growth is the only option. As the writer points out, rest, recovery and growth are normal in most human activities. Economics professors will never compute that, will they?
I've always thought that cycles in an economy are perfectly natural, especially when the economic model is tied to supply and demand as both sides tend to rise and fall. IMO capitalism is the system with the best chance to weather the cycles with the least amount of social damage. By its very nature the most opportunity exists near the bottom of any particular cycle. Since capitalism is set up in a way that offers rewards to innovators the rest and recovery stages are usually relatively short lived. Our governments are the wild cards that can significantly impact the cycle, and usually do in ways that prolong the downturns.
I think its also worth noting that except under the most extreme conditions recessions are usually concentrated in a few sectors while others keep going with less constriction. Right now the housing market in the US is difficult, but other parts of the economy are doing quite well. Energy and tech for example experienced no where near the fall that housing did and the DOW hit a multi-year high this week. Unemployment is a huge part of any recessionary cycle and could still be a big problem in the US if job growth isn't further encouraged. Extending benefits to the unemployed* rather than incentives to employers to hire workers is another example of government manipulation that will ultimately push the recovery timeline farther out.
*I'm not saying that the extension of unemployment benefits is good or bad, only that it does not address actually creating jobs for the unemployed. In what has become typical government fashion it is a band-aid, not a cure.
ApatheticNoMore
5-3-12, 11:32am
My criteria for natural is always: what happens in hunter gatherer societies (and I know there's no way back there with this population but nontheless it IS what is natural to the human organism). So I suppose they experienced naturally plentifully years and less so. Or one step up what about an agricultural society? I'm sure they experienced good crop years and bad.
I cant' start any type of thought from how crazy our economy is now, I mean fine, I understand how some basic economic priniciples work within the economy, but as for the big picture: I think our society now takes constant artificial stimulus to sustain it. We've been on a war economy since world war II. What would be done without *that* stimulus? We had to replace the USSR with some new boogie man to fight with the military.
It's a society that requires planned obsolescense, that requires waste. So nothing is built to last, massive amounts of food are thrown away etc.. I mean how do you get to natural from that?
Congress has voted to extend the period of eligibility for unemployment benefits and enacted a payroll tax cut to put more money in take-home paychecks. All of this so people will consume, consume, consume, thus activating the sluggish economy and ending the recession
Yea, you know I don't see unemployment benefits that way. I see them as keeping people out of more extreme poverty. Sure they enable some spending. They enable people to pay the rent rather than opt for homelessness. I'm fine with accepting recession as part of a natural cycle, but without any safety net? Geez.
It just generally lacks of a feel of what it is to be unemployed. For some it is a rest but it comes at the cost of extreme uncertainty. When will I find work again? And it's unknown, maybe next week, maybe NEVER for work of the the kind you are used to doing. People who have been unemployed for long periods of time statistically pretty much NEVER make up for the income loss and always earn less than those who haven't been, and the same for people graduating and entering the world during a recession. Now money is very much not everything, but I'm just pointing there is a human toll.
Spring may predictably follow winter (in a world without climate chaos like now), but does recovery predictably follow recession - ha not necessarily in a world of the long emergency.
I mean I really don't regard stupid stimuluses on anything and everything as the answer to anything (more spending and waste on everything just because - I mean targetted spending for larger social goals - becoming more sustainable etc. that's cool, but not just waste for wastes sake!). But btw, I don't necessarily regard very many governments as involved in stimuluses right now either. Europe is all austerity, and the U.S. while it does print money etc., I think the belief that that money is INTENDED to stimulute the economy is kind of naive. I think in reality it is banker bailouts, a wealth transfer upward, and that very little of that money actually gets into the larger economy (but such is why you don't have higher inflation from it, I guess). It's more like the rich making sure they own all the assets in the world at this point and whatever theft is necessary to make it possible. Yea I should believe it's stimulus based on some Keynesian greater good, but looking at how governments actually act? Why? Of course true stimulus advocates like Krugman know it's not a true stimulus, but they have no answer either. Sure quote a depression era economist until your blue in the face, but can you integrate environmental REALITY into your economic models? If not then we have a problem. Heck do you even do full integration of the effect of automation into your economic models? Or is the end result of efficiencies acheived through automation just that we need to waste even more?
I've always thought that cycles in an economy are perfectly natural, especially when the economic model is tied to supply and demand as both sides tend to rise and fall. IMO capitalism is the system with the best chance to weather the cycles with the least amount of social damage. By its very nature the most opportunity exists near the bottom of any particular cycle. Since capitalism is set up in a way that offers rewards to innovators the rest and recovery stages are usually relatively short lived. Our governments are the wild cards that can significantly impact the cycle, and usually do in ways that prolong the downturns.
I think its also worth noting that except under the most extreme conditions recessions are usually concentrated in a few sectors while others keep going with less constriction. Right now the housing market in the US is difficult, but other parts of the economy are doing quite well. Energy and tech for example experienced no where near the fall that housing did and the DOW hit a multi-year high this week. Unemployment is a huge part of any recessionary cycle and could still be a big problem in the US if job growth isn't further encouraged. Extending benefits to the unemployed* rather than incentives to employers to hire workers is another example of government manipulation that will ultimately push the recovery timeline farther out.
*I'm not saying that the extension of unemployment benefits is good or bad, only that it does not address actually creating jobs for the unemployed.
The problem with this is, the government doesn't create jobs. Unless the masses, middle class, have money to spend, no amount of incentives will make an employer hire people they simply don't need. True it's the housing market that is in deep collapse, but again, the government isn't buying houses. The people, again largely middle class who are buying, building houses. If they don't have that money coming in, the government can't will them to buy a house. Now, the government can work on national infrastructure, putting many of those from the building trade to work, but with the do nothing republicans blocking just about everything, and complaining about everything else, not much will get done.
The economy tanked largely on the housing market problem in part because the housing market reaches much further than just 'a house going up'. This affects the builder, the tool and dye that makes all the nails and screws, the plant that makes toilets, the lumber industry, brick industry, paint, carpet, etc... All of it is affected by a housing slump. Which means the workers in those industries have less secure jobs thanks to the slow down. Kind of the butterfly effect, if you will.
This is how the auto industry would have affected us, had Romney been President and let them go bankrupt as he said they should. Thank goodness Obama saw beyond the political and saved the auto industry which is every bit as interwoven in our society as the housing industry is.
We aren't a bunch of separate tribes. We are a huge, complex country reliant on each other to survive. We are all connected, and that's not necessarily a bad thing. Not necessarily a good thing either, it just is what it is. The Popeye principle: 'I yam what I yam and that's all that I yam'!
I don't work for the auto industry, in any capacity, nor do I buy new cars (used is the way to go) but I sure as hell am glad that industry didn't go under!
sorry, I digress. Boom and bust. I am a Texan, and every little Texan kid learns that this is a normal cycle of the economy. Of course that doesn't keep some from panicking in bust, but you can almost set your watch by it. I know our economy is based on growth, but wild growth isn't good. Perhaps a bit of recession is there to dial it back a bit. If only we could sustain gentle growth...
Spring may predictably follow winter (in a world without climate chaos like now), but does recovery predictably follow recession - ha not necessarily in a world of the long emergency.
I think that even after a total collapse a new cycle of growth would begin, the starting point would just be a lot lower. The goods and services may also look different, but in a purely economic sense trade would be reestablished and an upward trend would begin. It might not be that crazy to think that huge, global economic models at some point have to hit the reset button and collapse back to a level that is more easily sustained in order to survive. Can't think of any examples of that happening exactly. Most of the big guns just blow up and their assets get divided between the smaller players waiting to take their place, one of whom will eventually gain the upper hand and consume the others until it is so big it blows up and is divided up between the next round of smaller players....
I think there's a business cycle of expansion and contraction. I also think government can excacerbate the normal growth and decline with policies such as bailouts, stimuli, currency debasement, protectionism and price controls that may help certain activity in the short term but make the ultimate reckoning all the more painful. Sort of like extinguishing every forest fire until the big one that can't be controlled. Saving GM for the benefit of the UAW rather leave it to the corporate scavengers only puts off the time when even larger handouts will be needed. The "auto industry" was never at risk of extinction, just a couple of less nimble competitors. Ford and any number of foreign nameplates would have filled their niche.
Unless you view the human species as something operating outside "nature", I don't see how a modern industrial state is any less natural than a preliterate tribe is less natural than our simian ancestors.
I think boom and bust are just inherent components of capitalism. I don't think capitalism can exist without this cycle. Granted there are little booms and busts and big booms and busts (last decade being a good example), but I don't think you can have one without the other.
I think boom and bust are just inherent components of capitalism. I don't think capitalism can exist without this cycle.
I think boom and bust naturally fall out of the way our universe functions, and aren't a feature specific to or indicative of capitalism. The laws of thermodynamics, the conservation laws, the nature of cellular automata and self-organizing complex systems all drive to this sort of chaotic behavior, it is part of the basic makeup of reality.
I don't think life itself would exist without this cycle.
I think boom and bust naturally fall out of the way our universe functions, and aren't a feature specific to or indicative of capitalism. The laws of thermodynamics, the conservation laws, the nature of cellular automata and self-organizing complex systems all drive to this sort of chaotic behavior, it is part of the basic makeup of reality.
I don't think life itself would exist without this cycle.
I think it's a positive feedback loop http://en.wikipedia.org/wiki/Positive_feedback.
I think boom and bust naturally fall out of the way our universe functions, and aren't a feature specific to or indicative of capitalism. The laws of thermodynamics, the conservation laws, the nature of cellular automata and self-organizing complex systems all drive to this sort of chaotic behavior, it is part of the basic makeup of reality.
I don't think life itself would exist without this cycle.
I agree.
I don't know if recession is natural, but I think that boom and bust cycles are part of our economic history. Maybe irrational exuberance is the most accurate word, or at least Alan Greenspan liked it. When we are doing well in a certain area people seem to over extend themselves anticipating unrealistic prosperity. Then a crash follows as things compensate. The cost of goods and services are depressed and the cycle starts again with new opportunity.
All of this depends on new technology or abundant resources in a free enterprise system. Otherwise, maybe recession becomes the permanent state and the new norm.
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