Carrol Cox wrote: > Is it not correct that fairly frequent recessions are a necessity of the > capitalist system?...
Recessions are normal to capitalism, but depressions (a extraordinarily large recession and/or long-lasting inability to escape the business-cycle trough) are not. However, this does not mean that we always see them. A "normal" recession might be temporarily avoided by the Fed's cutting of interest rates. But then we see consumer price or asset-price inflation instead. Worse, the imbalances that had developed in the economy and were causing the recession might not be solved and/or would continue to accumulate. This is the way I interpret the "necessity" of recessions: it's like the necessity of taking aspirin (or whatever) if you have a headache; without the pills, the headache continues and/or gets worse (all else equal). > But both on this list and in the financial columns of the media everyone > is fussing about whether or not a recession is coming. Why so much fuss? > Of course one is coming before too long. A key problem is that the Greenspan years involved not "solving" recessions as much as delaying them. The bubble of the late 1990s created a lot of imbalances that should have meant a deeper recession in 2001 than what actually happened. Instead, Greenspan fought back with rate cuts, which created a new bubble (asset-price inflation in housing), which created new imbalances -- which seem to be worse than those of 2001. They involve a much larger chunk of the population and seem to strike the heart of the banks and mortgage lenders. (In recent months, there have been two (or more) episodes where banks refused to lend to each other.) To my mind, monetary policy (and standard fiscal or incomes policies) cannot deal with the underlying problem. Growing inequality of wealth and incomes (the one-sided class war) had created an "underconsumption undertow," dragging the US economy downward. All sorts of temporary solutions have been been tried, but this simply delays the difficulties and adds imbalances to the economy's operations. > Is there so much fuss because quite a few people think something _worse_ > than even a severe recession may be coming? A lot of the fuss is because the financial problems are hitting important people and institutions directly. These are the forces that media commentators pay the most attention to. The fact that the housing crunch has hit many in the "middle class" (a major US icon) also plays a role. In addition, some seem conscious of the fact that the accumulation of imbalances may have gotten so large that the US economy is at a "tipping point," perhaps falling into a "1990s in Japan" type situation.[*] The general Bush/Greenspan practice of pushing problems off into the future (rather than handling them right away) may be "coming home to roost." (Mixed metaphor alert!) That is, the future may be now. Of course, as Doug points out so often, the future is also unpredictable. [*] The "bubble economy" there (with both real estate and stocks going into bubbles) meant severe problems for the entire financial sector there. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
