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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The short answer is, maybe?
At its most basic, “the economy” is a representation of how well humanity is doing. We try to measure the economy using prices, which are supposed to represent value, and so in total gives us something we can track and watch grow, meaning humanity is getting better. In a perfect world, we constantly get better overtime, but sometimes we get the prices wrong – we get the value incorrect or we value the wrong things, maybe because we didn’t really know everything (like the 2008 financial crisis), or we got overexcited or confused about something (like the tech bubble). We see see and measure these corrections, and call them recessions.
Recessions are really a phenomenon of human fallibility. The study of economics spends a lot of energy trying to find practical ways to avoid or minimize recessions, and there would be no recessions in that perfect world where we got the prices exactly right all the time. But we’re still human and so recessions may not be a necessary phenomenon but they are probably inevitable and are probably a sign of healthy economic activity.
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