Found an interesting tidbit in last week's Economist (the real magazine, not our forum here) that I thought I would share. It contains one of the profound remarks that I occasionally run across, potential wisdom that is rather simple, yet not previously obvious (to me anyway):
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In 1871 America added about 6,000 miles of track to its railways, an endeavour that occupied a tenth of its industrial labour force. But by 1875 track-building had fallen by more than two-thirds, and employed less than 3% of America's workers.
According to Brad DeLong, an economic historian at the University of California, Berkeley, the violent ups and downs of the railway industry help to explain the popularity, before the Great Depression and John Maynard Keynes, of a fatalistic view of the business cycle. Recessions, however unpleasant, were cathartic, and therefore necessary. They released capital and labour from profitless activities (such as laying the yeear's 6,000th mile of track) as an essential prelude to redeploying them elsewhere. "Depressions are not simply evils, which we might attempt to suppress," wrote Joseph Schumpter. They represent "something which has to be done." |
The rest of the article is mostly about the Federal Reserve's take on recessions as a sometimes-necessary tool for reducing inflation before examining the potential necessity of a new recession in America to adjust the industrial and consumer imbalance that leads to our continuing trade deficit: "Recession is not inevitable. But if a 2007 slowdown curbs inflation, narrows the trade deficit and clears space for an American manufacturing revival it will prove a surprisingly fruitful period of dearth."
Now, I'm like most people in thinking that the economic equation is simple and Recession/Depression = Bad. Of course it's not so simple as that, and I wish I'd thought about it earlier, because the realization of the benefit of recessions to an efficient economy raise some interesting issues.
The economy is, especially in the modern age, in a state of constant and rapid fluctuation. Lasting stability in the system, while nice for forecasters and data collectors, causes a build-up in inefficiencies. Case-in-point, in recent years Americans have seen a highly accelerated rate of job-turnover, staying in single jobs for only a few years before moving on. This has two large effects on the American population: 1) Americans are much more stressed about their job security, and 2) Americans are much wealthier. While the instability of the job market may not be good for people's peace-of-mind, it makes for a healthier economy where workers can be rapidly switched from tasks that are no-longer profitable, to new jobs in new sectors where money is to be found. This is one of the primary reasons that our unemployment rate remains so spectacularly low, that our workers are making money at an ever-greater pace, and that job-related stress is so worryingly high.
But what is true for the microcosm of the labor-market is also true for the economy as a whole. Avoiding recessions, as most everyone wants to do, is nice for our country's peace-of-mind and stability, but it also causes inefficiencies to build up to the point where we may be avoiding recession at the cost of even better times ahead. Recession-battling can keep business sectors operating beyond an ideal profit/employment balance for long periods of time, while stifling the development of new more agile and profitable industries by tying up capital in existing arthritically-operating businesses.
The question, then, is what to do about this? I've never bought into the laissez-faire system of the market for the market's sake; but it's entirely fair to criticize government intervention policies when they hamper overall economic health. W may need a better solution than keeping zombie industries alive in the face of falling demand, as some Keyenesian interventionist policies would seem to do.
I would suggest, then, that government efforts at economic improvement be aimed more at facilitating the process of economic adjustment and restructuring that recession may represent, so as to hopefully lessen the blow and speed up recovery. More government efforts towards providing job-training and employment-locating services are desirable, and are beneficial to the economy both during recessions and high-activity points.
In any case, we may need to be taking another look at our perceptions of economic downturns, and our policies for handling them. It's a rather interesting conundrum that I thought I'd share, maybe get some good ideas out there.
Easy enough concept. However...
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| "Recession is not inevitable. But if a 2007 slowdown curbs inflation, narrows the trade deficit and clears space for an American manufacturing revival it will prove a surprisingly fruitful period of dearth." |
I'm not seeing a manufacturing revival anytime soon.
Overall, the media is giving the impression that we are seeing solid improvements to help us out of "this" recession. Employment figures are promising, DOW remains high, have a Democratic-controlled U.S. Congress... as well as odd and end items that are mentioned at various times.
