A simple thought experiment showing why recessions are an unnecessary bug in our economic system
On Monday we all go to the offices and factories we work at and produce goods and services. We exchange these goods and services among each other for mutual benefit.
On Tuesday it’s declared there is a recession. The same offices, desks, factories, machines are still sitting in the same buildings, but now for some reason we stop going to work, and we stop exchanging goods and services.
Why is that? We could decide to just go to work anyway and do the exact same thing we did on Monday—the desks and machines are still there exactly the same as yesterday for us to use, and we can still exchange goods and services at will.
In 1973, the cartel of oil-exporting countries agreed to quadruple their prices. Surely it’s understandable in that case, that there’s less money available for other expenses and so there will be a general slowdown.
But perhaps you’re arguing that recessions with more abstract causes are unnecessary, and the result of macroeconomic policy? I think this is what they believe in the Austrian school of economics, when they are skeptical about the “business cycle”.
For my part, I would also like to hear from you, what you think the causes of economic growth are. To have economic growth, you need more than just the continued existence of “desks and machines”, you need there to be an increasing number of them, or an increasingly productive use of them. Why should we expect either of those trends?