How do we know for sure that there’s a recession coming, and why can’t we stop it?
In: Economics
1) historical indicators that lead to a recession. We look at things that happened prior to a recession both here and globally and can draw ‘reasonable’ conclusions that a recession is on the way. There are a ton of these but things like new construction, credit leverage and borrowing, growth of employment are some of the big ones.
2) There are things that can be done but some political groups are ideologically opposed to some of them. E.G Liberal leaning parties avoid things like austerity and Conservative leaning groups avoid public investment to spur growth.
Generally speaking, the global economy doesn’t like large, short notice disruptions. It is almost impossible to significantly change a supply chain when trade boundaries go up, go down, or otherwise change. This uncertainty tends to make businesses go conservative in their cash planning and they prepare to ‘weather the storm.’ Shareholders are fickle and missing your projections typically pisses them off, even if it’s not your fault.
Recessions are natural. We know its coming because they come in a cycle, and its been a while since the last. There are also a number of indicators that suggest a shock will come soon. The difficulty is in predicting the exact time and severity of the recession.
We can’t stop it because recessions are a natural product of our economic system. We rely on unproductive businesses going bust. Stopping recessions would require unproductive businesses to be kept afloat (since we have no effective way of knowing which are productive if we subsidise them) which would slow productivity growth in the long run. The USSR avoided recessions because all firms were state run, but perpetually low productivity growth meant that in the long run it was poorer than market capitalist economies.
What we can do is mitigate recessions, by preventing downward spirals and using various methods to prevent recessions causing poverty, like lowering interest rates or launching public works.
Its very similar to the fact that we know its going to rain again and cant stop it. Its a natural thing. When will it rain exactly? We can only guess(and aren’t to bad a t guessing).
Same can be said for recessions, they are a natural outcome of the economic process. Nobody actually knows with any real certainty when or why it will happen just that it will eventually. The economic process is extremely complex and you should always be wary of anyone making absolute claims of the future.
Computationally predicting the weather and predicting a recession are the same problem. With weather we just don’t care as much about accuracy as we do in economics(1in of rain or 2in vs 1% growth or -1% growth).
As mentioned recessions (and periodic depressions) are part of an inefficient capitalistic system with government created money supply.
Most of recessions and non recessions (growing economy) come from large group social thinking and feelings such as a loss of confidence in their economic prospects. People’s greed and fear drives much of the economy, and when large groups of folks fear rainy days they clutch their purse strings and cause depressed economic activity, vice versa when they think it’s all sunshine and roses.
Stopping recessions would require manipulation on a lot of fronts and it isnt practical. Although governments sometimes try .. usually when it’s too late.
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