Friday, Aug 24, 2007
benefits of a recession
The Economist: Does America need a recession?
Some economists believe that recessions are a necessary feature of economic growth. Joseph Schumpeter argued that recessions are a process of creative destruction in which inefficient firms are weeded out. Only by allowing the “winds of creative destruction” to blow freely could capital be released from dying firms to new industries
Posted by sold 2 rent 1 @ 10:37 AM (945 views) Add Comment
10 Comments
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1. Mark said...
yes, you cant make money or grow without a sharp drop now and then.... otherwise growth stops...
2. An Bearin Bui said...
For most of us working in the real economy (i.e. not housing-based wealth) the last few years of housing/credit-fuelled expansion have felt like a recession anyway - income growth has been stagnant or falling, the cost of living has risen but without a corresponding rise in interest rates to grow savings, pensions have dwindled and the cost of owning your own home has skyrocketed. Unless you've had housing equity to cash in over the last 5-6 years, this period might as well have been a recession anyway as living standards have declined. Technology workers in the developed economies, for example, have faced adverse economic conditions with the threat of globalisation and outsourcing hanging over them for the past 7 years - it would be nice if some City workers and estate agents felt the pain too for a change.
3. sold 2 rent 1 said...
Quote:
"A recession now would reduce America's trade gap as consumers would at last be forced to trim their spending. Delaying the correction of past excesses by pumping in more money and encouraging more borrowing is likely to make the eventual correction more painful"
As I was arguing yesterday, recessions may trim spending and reduce borrowing, but total debt levels as a percentage of GDP have only flattened during recessions and then taken off again in a recovery.
How is the US ever going to compete on the global stage again?
A simple recession will not set the US back on the correct path. The last 6-7 recessions have proved this.
How will the US handle the off shoring of 40m professional jobs over the next 2 decades? It can't.
There needs to be a fundamental shift in attitudes and a huge purge of debt levels.
Recessions are not powerful enough to do this.
Think of a recession as minor operation.
Not pleasant but necessary if you want to get better.
Think of a depression as a leg amputation.
If you don't have it you will die and if you do have it your life will change forever.
Maybe my thinking is ahead of its time.
If you run an economy for 50+ years on a flawed concept of expanding debt to infinity then there is a massive price to pay at the end.
I try to keep on a positive note though.
If recessions serve a purpose of setting up the next business cycle, depressions serve a purpose of setting up another 50-60 years a glorious expansion.
No pain. No gain.
4. harold said...
What we need is a system which reduces mal-investments in the first place, i.e., no more cheap credit.
5. planning4acrash said...
Reduction of debt will also reduce foriegn reserves of places like China and Japan who, by lending to America, have absorbed some of the risk. And, as you suggest, America will reduce its imports, thus harming places like China. America will only go into a depression kicking and screaming, dragging others down with it to make sure that it doesn't take all of the rap. Who will end out on top? I don't know, but you can bet your bottom dollar that the American neo-cons will have something up their sleeves. So long as everybody goes down, and America doesn't go down as much, it will be sitting sweet in terms of its plans for world domination.
6. mrmickey said...
The key to America's economic prosperity since the second world war has been it's military. With it's military it can project it's power and protect it's interests throughout the world just as the Royal Navy did 200 years ago. It can force creditor nations to take devaluing dollars in payment for goods as a form of tribute. It's military spending will eventually bankrupt the US as it did the British Empire this is bad news for us as we benefit from US military dominance which keeps Russia off our backs as Europe has no military to speak of and therefore has no real influence when push comes to shove.
7. planning4acrash said...
I totally agree, whilst I abhore neo-liberal imperialism, I would rather a world order controlled by America than a Russian corruption, Chinese communism and repressive Muslim theocracy (secular muslim states like Turkey more than welcome in my books).
8. waitingfor hpc said...
YES!
9. Ah-so said...
"I totally agree, whilst I abhore neo-liberal imperialism, I would rather a world order controlled by America than a Russian corruption, Chinese communism and repressive Muslim theocracy (secular muslim states like Turkey more than welcome in my books)."
plannin4acrash - comments here must only be opinionated anti-American rants and you must applaud anything that suggests the destruction off the US as a superpower and only believe that the alternative is a utopia free of neo-imperialism.
10. planning4acrash said...
: ) Its so hard to be pro-american, and I'm not, I hate what they are doing to other countries in the name of profit, stuff like refusing to support condoms in Africa to appease Catholic voters, what they are doing to the environment 25% of all carbon emissions, 15mpg cars, it makes me sick, and I couldn't stand how Blair followed Bush to war apparently without question. So, there you go!! But I'd rather that than the alternative. Personally I wish that Europe was the superpower, but we lost that right after two world wars, or that there was no such thing as super powers, possibly whoever is the superpower would be corrupt in the end, maybe it comes with the territory, like you have to be hard nosed to get and stay at the top, I know the UK was during slavery, etc. Does anybody know how we can re-ignite those 60's flower power dreams?!