Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Why the obsession with dodging recessions is a bad thing

By Graham Young - posted Wednesday, 9 August 2023


Banks that can't fail take unacceptable lending risks, and assets that escalate in price indefinitely reduce real returns, encourage unwarranted speculation, and exclude a lot of new entrants (first home buyers, for example).

They also wrongly think that turnover in the economy equals growth, and for a moment, were seduced by Modern Monetary Theory (MMT) into thinking they could permit governments to borrow without limits.

These policies have given us below-par growth in the GDP and in productivity, and they have left us over-exposed in the event that a serious crisis occurs and with a serious housing crisis.

Advertisement

Why recessions are good for the economy

There are a number of reasons why recessions are necessary and beneficial, although painful at the time.

Without downturns, too many inefficient companies survive-we need what Schumpeter called "creative destruction", where companies, or sometimes whole industries, are replaced by competitors.

Recessions test how strong your structure is. Are you overborrowed? Do you have regular, reliable, and predictable cashflows? Do you have flexible employment systems? Have you hired the best managers and professionals?

They teach investors and lenders to be realistic. They also test the real need for your products.

In a recession, unemployment rises, and wages stagnate or decrease. Consumers become more conscious of cost or value, which then transfers to you directly if you are a retailer and then all the way up the chain.

Recessions allow better companies to expand and use resources more efficiently, increasing productivity, or they give space to novel competitors who have found better ways of providing products and services, again raising productivity.

Advertisement

Without a recession, market power tends to get concentrated in established firms, making them complacent and lazy and often providing them with political power to make it difficult for competitors to penetrate their markets.

The pattern of bad behaviour by governments in an effort to avoid recession was set after the global financial crisis.

In Australia, we aggressively cut interest rates and spent government money on public works.

  1. Pages:
  2. 1
  3. 2
  4. Page 3
  5. 4
  6. All

This article was first published by the Epoch Times.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

5 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Graham Young is chief editor and the publisher of On Line Opinion. He is executive director of the Australian Institute for Progress, an Australian think tank based in Brisbane, and the publisher of On Line Opinion.

Other articles by this Author

All articles by Graham Young

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Photo of Graham Young
Article Tools
Comment 5 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy