Eli5 Are episodic recessions actually a necessary phenomenon for a healthy economy?

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People usually think recessions are bad. Are they in fact necessary? Akin to naturally occurring small forest fires…those are good otherwise there could be a mega fire.

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48 Answers

Anonymous 0 Comments

Whether or not a small forest fire is good depends on whether or not you’re one of the things being burned.

Anonymous 0 Comments

The thing about modern economics is that it’s a pretty recent concept of human history. The stock market has been around for just over 200 years. The industrial revolution and factory goods in the 1800s shifted how we consume goods. We used to measure the economic health of the country primarily by statistics like employment rates and average income, now we measure it primarily by how Wall Street is doing.

We know that small fires can help forests because we’ve spent thousands of years observing nature. We can imitate the natural processes we observe and recreate them in controlled experiments, because the environmental factors which cause forest fires are pretty consistent.

We have not had that same length of time to study economics, and the economy is full of other variables that keep changing as our technology changes. So the most honest answer is “we just don’t know” and “it depends on how/if the recession inspires policy changes to lift people out of the recession.”

Anonymous 0 Comments

Whether or not a small forest fire is good depends on whether or not you’re one of the things being burned.

Anonymous 0 Comments

I don’t think they are necessary, but the way our government/politics works they are inevitable.

A government will always chose to have a fast expansion period because it produces wealth in the medium term, so for whoever is holding an elected position it will be positive even though this will result in a recession in the future (another person will have to deal with it).

So instead of having an average steady growth for many years, we(government) will chose to have a fast burst of growth followed by a period negative growth to average things out. So it is not really a bug but a feature.

Anonymous 0 Comments

Whether or not a small forest fire is good depends on whether or not you’re one of the things being burned.

Anonymous 0 Comments

The thing is, these are policies and economic structures that we’ve built for ourselves. We have massive influence on every variable involved in the economy so, in essence, it’s not really NECESSARY to avoid a future disaster to have a recession because we’re making up the rules.

In nature, yes smaller fires can help stop a large inferno from doing even more damage but those are mechanisms developed over millions of years and in specific regional and climate circumstances. The situation can change drastically with no influence from the trees or the brush. Nature doesn’t really care, it just does. We do care, and we’ve crafted a system tailored to what we care about most, so our flaws are all over how we run things for ourselves.

Anonymous 0 Comments

The thing about modern economics is that it’s a pretty recent concept of human history. The stock market has been around for just over 200 years. The industrial revolution and factory goods in the 1800s shifted how we consume goods. We used to measure the economic health of the country primarily by statistics like employment rates and average income, now we measure it primarily by how Wall Street is doing.

We know that small fires can help forests because we’ve spent thousands of years observing nature. We can imitate the natural processes we observe and recreate them in controlled experiments, because the environmental factors which cause forest fires are pretty consistent.

We have not had that same length of time to study economics, and the economy is full of other variables that keep changing as our technology changes. So the most honest answer is “we just don’t know” and “it depends on how/if the recession inspires policy changes to lift people out of the recession.”

Anonymous 0 Comments

The thing about modern economics is that it’s a pretty recent concept of human history. The stock market has been around for just over 200 years. The industrial revolution and factory goods in the 1800s shifted how we consume goods. We used to measure the economic health of the country primarily by statistics like employment rates and average income, now we measure it primarily by how Wall Street is doing.

We know that small fires can help forests because we’ve spent thousands of years observing nature. We can imitate the natural processes we observe and recreate them in controlled experiments, because the environmental factors which cause forest fires are pretty consistent.

We have not had that same length of time to study economics, and the economy is full of other variables that keep changing as our technology changes. So the most honest answer is “we just don’t know” and “it depends on how/if the recession inspires policy changes to lift people out of the recession.”

Anonymous 0 Comments

The thing is, these are policies and economic structures that we’ve built for ourselves. We have massive influence on every variable involved in the economy so, in essence, it’s not really NECESSARY to avoid a future disaster to have a recession because we’re making up the rules.

In nature, yes smaller fires can help stop a large inferno from doing even more damage but those are mechanisms developed over millions of years and in specific regional and climate circumstances. The situation can change drastically with no influence from the trees or the brush. Nature doesn’t really care, it just does. We do care, and we’ve crafted a system tailored to what we care about most, so our flaws are all over how we run things for ourselves.

Anonymous 0 Comments

I don’t think they are necessary, but the way our government/politics works they are inevitable.

A government will always chose to have a fast expansion period because it produces wealth in the medium term, so for whoever is holding an elected position it will be positive even though this will result in a recession in the future (another person will have to deal with it).

So instead of having an average steady growth for many years, we(government) will chose to have a fast burst of growth followed by a period negative growth to average things out. So it is not really a bug but a feature.