Recessions Are a Good Thing?
In an op-ed for the New York Times (of all places) James Grant gives one of the clearest, simplest expositions of Austrian business cycle theory I’ve come across. I especially like his take on rescessions:
Now what to do? Why, slash interest rates to coax forth still more lending and borrowing. It’s the customary curative, seemingly as humane as it is politic.
And if recessions served no useful purpose, it might be. But recessions do. On Wall Street, they speak of “corrections.” What corrections correct are errors in judgment. So do recessions.
They allow the sorting out of boomtime error. They permit — indeed, force — the repricing of inflated assets. In a downturn, previously overpriced businesses, houses and buildings are made affordable again.
Think of a recession as the burn you feel when you first start working out. Hitting the gym for the first time after you’ve been taking it easy and snacking too many “low-interest candy bars” is never fun. But that initial pain is the price you pay for getting back in shape. There’s nothing wrong with recessions in and of themselves. The problem lies with the policies that led us to a point where a recession (or correction, or bubble popping, or whatever) was necessary.
