Why the obsession with dodging recessions is a bad thing

The interest rate cuts sparked an increase in housing prices which barred many young Australians from the market because they couldn't afford a deposit. The spending was financed by government borrowing, which has ultimately fed into increased inflation.

A general view of homes in the suburb of Balmain is seen in Sydney, Australia, on Sept. 7, 2022. (Lisa Maree Williams/Getty Images)

The spending arrived too late to have an impact on the actual recession itself, thus proving that the economy was actually resilient enough to self-correct without government help.

We have repeated that pattern every time since at the hint of any problem, leading to the absurdity of our response to COVID where we shut down much of the economy for 12 or more months, and borrowed more than the federal budget to keep things running as though everything was normal.

That, combined with the energy transition, expansive MMT-fuelled infrastructure construction, and record levels of immigration, is what has caused our current inflation problems. And the Reserve Bank of Australia has now hiked interest rates by four percent, which might tip us into the recession they have tried to avoid for 15 years.

But things are worse than that. Depressing interest rates to 0.15 percent meant that the price of money was much lower than it should have been.

Long-term returns on cash have historically been in the four to six percent range. This is a reasonable price.

Savers are owed a suitable return on their funds. This is actually a factor, via discount rates, in the assessment of which projects are viable enough to proceed.

Lower the cash rate and pay savers too little, and you encourage risky borrowing in low-return projects that cannot pay back their capital value over any reasonable period of time.

So by trying to avoid a recession, we've made things worse. We've lowered the growth potential of the economy at the same time as, making it more vulnerable to shocks.

The longer we go on like this, the greater the potential for another Depression to arrive. That's the kind of recession you don't need to have.