Why the obsession with dodging recessions is a bad thing

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.

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.

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.