Question: the economics of recession

I recognize there are business cycles & geopolitics of resource availability at play, which makes me wonder: given a recession in any particular year (say, 1958), did a recession have to happen that year? What sorts of factors could have butterflied it entirely, or pushed it forward or backward?

I'm also completely not interested in hearing from Econ majors who want to say it's too complicated for rubes like me to understand, so if that's all you've got, don't even bother.
 
A lot of the time recessions are caused by events

For 1958 there appears to be a few main factors

1. As far as I can tell the American economy was unnaturally strong in 54/56. This was a epace dividend from the end of Korea. This resulted in expansion of production to meet unsustainable demand and led towards economic growth with high inflation.
2. The central bank tried to slow the economy with high interest rates.
3. The high interest rates discouraged capital spending on machine parts, cars and durable goods which appears to be the main drivers of the recession.

In terms of what could butterfly the recession, well you could raise interest rates earlier (but not as sharply) to attempt to control the economic growth during 54/56.
 
A lot of the time recessions are caused by events

For 1958 there appears to be a few main factors

1. As far as I can tell the American economy was unnaturally strong in 54/56. This was a epace dividend from the end of Korea. This resulted in expansion of production to meet unsustainable demand and led towards economic growth with high inflation.
2. The central bank tried to slow the economy with high interest rates.
3. The high interest rates discouraged capital spending on machine parts, cars and durable goods which appears to be the main drivers of the recession.

In terms of what could butterfly the recession, well you could raise interest rates earlier (but not as sharply) to attempt to control the economic growth during 54/56.
I wasn't only thinking of '58, that's just the one that came to mind.

You make a good case. Thx.

It also looks fairly obvious: no war in Korea means no recession as a product of it. Looking at this graph, I wonder if the immediate postwar boom wouldn't have had much the same effect anyhow, tho.otl u.s. gdp growth 1945-2018 (alternatehistory).png
 
Typically recessions are caused by a multitude of individual decisions, making them difficult to butterfly away completely. Different policy decisions can mitigate/worsen them or bring them forward/backwards though. The classic claim is that more restrictive policy in the boom phase of the business cycle will lessen/delay the downturn phase. The problem is that we don't know at the time whether the economy is significantly above trend until it's too late, so being overly concerned about booms getting out of hand could lead to sub-optimal performance too.

In other words, more expansionary policy in 1956-7 might delay a downturn. Equally, slightly more restrictive policy in 1953-5 could lead to lower growth in 1955-7 and a smaller downturn in 1958 (or a delay in the end of the upswing). Obviously this depends on both the exact measures adopted and how they would effect the economy (about which there is likely to be considerable differences of views among economists).
 
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Typically recessions are caused by a multitude of individual decisions, making them difficult to butterfly away completely. Different policy decisions can mitigate/worsen them or bring them forward/backwards though. The classic claim is that more restrictive policy in the boom phase of the business cycle will lessen/delay the downturn phase. The problem is that we don't know at the time whether the economy is significantly above trend until it's too late, so being overly concerned about booms getting out of hand could lead to sub-optimal performance too.

In other words, more expansionary policy in 1956-7 might delay a downturn. Equally, slightly more restrictive policy in 1953-5 could lead to lower growth in 1955-7 and a smaller downturn in 1958 (or a delay in the end of the upswing). Obviously this idepends on both the exact measures adopted and how they would effect the economy (about which there is likely to be considerable differences of views among economists).
That's all very true. It's much easier looking backward. ;)

Based on nothing but my own notions,:openedeyewink: it seems some Fed Chairs were better at "walking the knife edge". The Clinton Era was about as good as it's been since the '50s, & there wasn't the pent-up postwar demand to carry the U.S. then. Somebody was getting it right.

OTOH, how much of that was early (unknown) symptoms of the '08 Crash? I couldn't even guess.

I guess the better question might be, if I was looking to prevent a recession, or provoke one, are there obvious things to do (or not do) to get that result, or will it hang on the "state of play" of the economy? Or does that still allow for good/bad decisions to have greater-than-obvious consequences?
 
there was 05/06 some thought that the mortages were fracked but it wasnt mainstream. There were bigger signs in 07 . But that is from my very shallow understanding and mostly from movies knowledge i think.
 
there was 05/06 some thought that the mortages were fracked but it wasnt mainstream. There were bigger signs in 07 . But that is from my very shallow understanding and mostly from movies knowledge i think.
No, AFAIK, nobody outside the banks had a clue in '07, & even the bankers didn't see it before that. (Except for the Christian Bale character in "The Big Short"?)

What I was thinking was, were the things that ultimately turned out toxic acting to boost the economy of the '90s? If so, would changing the rules (or even improving enforcement) have put a crimp in the economy at the time?
 
I guess the better question might be, if I was looking to prevent a recession, or provoke one, are there obvious things to do (or not do) to get that result, or will it hang on the "state of play" of the economy? Or does that still allow for good/bad decisions to have greater-than-obvious consequences?
I'm afraid there aren't specific things to do/not do that policymakers aren't already doing/know about, policymakers have fairly smart advisers. All we're left with is platitudes, such as don't let the economy overheat, when nobody actually knows what this involves. For example, steady state unemployment used to be thought of as about 5% (in the US), but last year it was significantly below 4% with no real sign of wage inflation, at least yet (there's a significant debate about this, revolving around reduced worker bargaining power versus a decline in labour force participation during the recession meaning there's a large number of people that are without work but are not in the labour force and so not captured by the unemployment rate).

The Lucas critique applies here: if policymakers discovered a good recession predictor and started using it to guide policy then economic actors would also change their behaviour and it might no longer be a good recession predictor. Recessions avoided by policy choices don't get noticed.
 
No, AFAIK, nobody outside the banks had a clue in '07, & even the bankers didn't see it before that. (Except for the Christian Bale character in "The Big Short"?)

What I was thinking was, were the things that ultimately turned out toxic acting to boost the economy of the '90s? If so, would changing the rules (or even improving enforcement) have put a crimp in the economy at the time?
I had an economics professor that used to say that when the culture of investment becomes tied into assets that have don't value and don't produce real returns the economy is toxic.

If we look at recent recessions we see a 2008 crash based on mortgages and financial products. A dot com crash (asset values based on Internet and potential not linked to earnings).

He probably has a point here but its not something governments can really do a big thing to change peoples behaviour.
 
I had an economics professor that used to say that when the culture of investment becomes tied into assets that have don't value and don't produce real returns the economy is toxic.
I'd agree with him. Which does leave me wondering what that means for insurance, which I don't see as producing real returns--but my grasp of that in economic terms is undoubtedly off. ;)
He probably has a point here but its not something governments can really do a big thing to change peoples behaviour.
There, I'd disagree. IMO, governments can encourage good behavior with a variety of incentives, punish bad behavior, & maybe most importantly, simply prohibit stupid & dangerous behavior, & stupid & dangerous things. In the last group, I would place all financial derivatives of any description, since not even the people who create them actually know what they're going to do in any given circumstance--& that meets my definition of dangerous and stupid.

That does require governments willing to enforce any actual regulations...& regulators able to avoid being bamboozled. (Before 2008, it seems, neither obtained in the U.S.)

However, that's gotten OT...
 
Well insurance has a purpose. It isolates a business or individual from risks outside their control.

The problem is when compensation culture goes out of hand or insurers tries to pay more attention o other things it becomes an expensive item weighing society down.
 
Well insurance has a purpose. It isolates a business or individual from risks outside their control.

The problem is when compensation culture goes out of hand or insurers tries to pay more attention o other things it becomes an expensive item weighing society down.
Oh, I appreciate that. When you say "real", I think of making money on making & selling actual stuff, not just moving money around. Insurance, for all its usefulness, seems kind of grey, in that light. Which I why I say my understanding is liable to be off. :)

If you want to talk about turning the whole economy into a casino full of side bets on side bets, OTOH...:eek::rolleyes:
 
Lesson # 8: Illiquidity closely resembles insolvency.

' . . . Bear Stearns was bleeding cash in March 2008, owing largely to rumors (based on facts!) of large losses in its mortgage businesses. In the fateful days before its shotgun marriage to J.P. Morgan Chase, Bear was about to run out of cash. . . ’

page 11
This is the whole psychological aspect in which people first ignore, and then overreact.

——————-

The U.S. Fed rescued Bear Stearns in March ‘08, but then six months later decided they didn’t have the authority to rescue Lehman — Lehman Brothers filed for Chapter 11 bankruptcy late Sunday night / early Monday morning, 1:45 a.m. Sept. 15, 2008 — and then the Fed decided they must rescue AIG just a few days later.
 
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Recessions don’t actually exist. Even less so than political parties or ideologies.

Recessions are a normal science or common knowledge term to talk about repeated aggregate negative growth over time. The aggregation is an imposed concept: even the state in these wage labour societies doesn’t command the economy in aggregate. Macro tools don’t allow for such a command, even closely controlled state property producing for market (post offices, etc) can’t determine aggregate growth. You can prime the pump: you can’t actually do the pumping no matter the size of your state enterprises. (More over most capitalist states are controlled by bodies of men opposed to aggregate control).

People don’t experience the economy in aggregate: they purchase individual consumption bundles in local labour markets. Or they own capital bundles that vary from the aggregate: always with less state enterprise than aggregate, often with a market plan (don’t bet on the bad ones), sometimes with a fixation such as selling Fords in Mayfield West. This means that for many, despite the system wide affects, aggregate accounts are poor matches.

The long aggregate recession for Australian workers since the 1970s is a case in point: non labour markets achieved growth over inflation. The labour market did not.

So with multiple causes and multiple outcomes “recession” is a really poor category. What do you want to actually do:

fuck the workers?
tank industry specific growth?
tank long term growth?
convertibility or macro indicator crisis?
weaken one state compared to others?

Recessions conceptually mask those and others. Their local or market effects are complex and “fun.” Flipping on or off major structures such as state enterprise or expense, tarriffs or float prices, land release or closure, there are loads of ways you can shut down growth.

Dead locked state agent who is a major investor, and expected state expenditure changes is a good one. Then you have the party and the faction have differing opinions on macro indicators combined with government instability.

The most important thing is to wait. Whatever consensual or regulatory system will be subverted and fail. However this doesn't play into your need for agency for PODs.
 
If you want to talk about turning the whole economy into a casino full of side bets on side bets, OTOH...:eek::rolleyes:
I think where you can connect this with insurance is that Credit Default Swaps were initially intended as insurance and a way to hedge risk.

But were also a great way to make money as long as you are willing to run the risk that the big bad thing wouldn’t actually happen.
 
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This is the whole psychological aspect in which people first ignore, and then overreact.

——————-

The U.S. Fed rescued Bear Stearns in March ‘08, but then six months later decided they didn’t have the authority to rescue Lehman — Lehman Brothers filed for Chapter 11 bankruptcy late Sunday night / early Monday morning, 1:45 a.m. Sept. 15, 2008 — and then the Fed decided they must rescue AIG just a few days later.
And then the federal government (or the Fed, I'm not entirely clear who has the authority, here) accepted (IMO) bad advice from the SecTreas candidate, Tim Geithner (who had a conflict of interest, but would have denied it), & didn't wind up & shut down the failing institutions in an orderly fashion--not let them crash, that would've been a disaster. Instead, the advice was bail them out--essentially reward the stupid, careless, & even criminal behavior that produced the mess. Nor were any of the rating agencies, who were taking fees from the investment banks & effectively providing propaganda instead of honest assessments, punished at all.

It leaves us waiting for it to happen again--& it will.
What do you want to actually do:

fuck the workers?
tank industry specific growth?
tank long term growth?
convertibility or macro indicator crisis?
weaken one state compared to others?
...there are loads of ways you can shut down growth.

The most important thing is to wait. Whatever consensual or regulatory system will be subverted and fail. However this doesn't play into your need for agency for PODs.
Well, aren't you a ray of fuckin' sunshine. :openedeyewink:

You've taken clear, simple terms to illustrate what I suspect we all do know: it's hellishly complicated IRL.
 
Well, aren't you a ray of fuckin' sunshine. :openedeyewink:
I was born in Australia in 1978. By 1978 all factions of the labour movement had been won over to the general concept of fucking workers. (Nurses, Pilots, Unemployed, Builders' labourers excepted).

Guess how well macro trends have impacted on my life trajectory?

You've taken clear, simple terms to illustrate what I suspect we all do know: it's hellishly complicated IRL.
Give me a specific recession like "Post-Korea" and I can give you indicators. Post-Korea wouldn't have happened without the Korean War, Imperialist capital flight to Japan (cheap labour, guaranteed buyer, etc.). But without the Korean War the *pre-Korean* US recession would have continued. In this case straight state expenditure reversed one recession, and then the rapid withdrawal of the state as a purchaser of last resort reimposed it. Labour lacked wages sufficient to purchase as last resort, and it wasn't until the white working class was bought off with consumer goods post 1955 that you really start to get labour as the purchaser of last resort. This then causes a decline in consumer quality as labour-at-work and capital conspire to reduce quality and fuck labour-as-purchaser-of-last resort. And that, and a number of other indicators heads towards 72.

yours,
Sam R.
 
I was born in Australia in 1978. By 1978 all factions of the labour movement had been won over to the general concept of fucking workers. (Nurses, Pilots, Unemployed, Builders' labourers excepted).

Guess how well macro trends have impacted on my life trajectory?
Easy guess. ;)
In this case straight state expenditure reversed one recession, and then the rapid withdrawal of the state as a purchaser of last resort reimposed it. Labour lacked wages sufficient to purchase as last resort
I have a sense the first is always true, with the amount of spending power any government has. Is the second?
This then causes a decline in consumer quality as labour-at-work and capital conspire to reduce quality and fuck labour-as-purchaser-of-last resort.
I take you to mean pressure to keep wages down regardless, with short-term gains in profitability as a result, but long-term undermining the economy at large.
 
. . . People don’t experience the economy in aggregate: . . .
I agree.

I remember this guy telling how his high school civics teacher said the unemployment rate is either 0% or 100%. If you’re working, it’s 0%. But if you’re looking for a job and not finding it, unemployment is 100%.

A lot of truth in that! :openedeyewink:
 
‘ . . . what I now call a “Reinhart-Rogoff recession” seems to be a creature of a different sort. . . ’

‘ . . . Reinhart-Rogoff recessions destroy parts of the financial system and leave much of the rest reeling—and needing to deleverage. All of that stunts and delays recovery. Reinhart-Rogoff recessions also leave large buildups of debt--financial sector debt, corporate debt, household debt, and public debt—in their wake. . . ’

page 8

Alan Blinder’s paper from 2014. Some parts I don’t understand, other parts only partially, but I still feel I got a lot out of reading / skimming his paper.
This is economist Alan Blinder making the obvious point that 2008 & ‘09 was quite a bit worse than the average recession.
 
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