Where does all money and wealth go in the recession?
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Imagine you announced you’re gonna bring a big pie to a birthday party, enough for 100 people. You make them happy as 100 people showed up, more or less. The next birthday party you announce you’re gonna bring a pie enough for 110 people, but it’s actually enough for 115. You make people extra happy, exceeding forecasts. Some get to eat extra slices.
Next birthday party you announce a pie enough for 120 people, and 120 show up, But it’s actually enough only for 118. People are slightly bummed, but it’s still more than last year.
This goes on for many birthday parties in a row, sometimes more than you announce, sometimes less. You’re now up to a mighty 150-people pie. But next party, due to unforeseen events such as sugar costing twice as much, you announce you’re going to make a pie enough for only 145 people. This isn’t even the same as last party, this is *less* when people expected more. There’s 160 people at the party. There’s going to be some major rationing in order to make it work. People won’t be happy.
So you see, in a recession, it’s not that wealth and money ‘go somewhere’, but rather that you just haven’t created as much as people expected.
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