If every country is in some sort of recession, shouldn’t the economy adjust accordingly as opposed to falling even more?
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In a regular boom and bust cycle the economy runs hot and then cools down. The bust can be caused by a lot of factors including low amounts of currency (deflation), high amounts of currency (inflation), low productivity (regulation), or low demand.
After WW1 the demand for all goods went down severely. The world’s economy had been running hot during WW1 to keep up with demands of the field with government dollars being poured into it to keep it going (all on loans). But kind of like when COVID ended, the needs of the economy changed and this lead to an oversupply of goods.
To resolve this the government’s of the world began pouring money into the economy hoping that more free money would stimulate demand. This caused an artificial boom that crashed even harder. To try and resolve this crisis caused by the crisis’ solution they came up with another solution that created another crisis.
The governments of the world decided they were now going to directly intervene in the economy seeking to stimulate demand within their own countries and restrict trade that competed with theirs. Large falls in the global trade caused the recession to continue.
Had they done nothing at all the whole crisis would have just resolved itself. But instead all of the solutions they did created government hurdles for the economy to try and overcome.
Since then the way we handle recessions is quite a bit different and a lot more hands off. Most money tends to go to maintaining large institutions that might crash rather than handing out copious amounts of cash to the public.
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