Wednesday, December 17, 2008

Recession is Good?

I cannot believe how the US economic think tanks are still in denial about their failed corporations - They still do not get the fact that the failed corporations (e.g. Lehman, AIG) failed for a reason - bad management. They are too much identified with the problem and taking it personally. They still talk about investor confidence and the public not being ready 'to handle a catastrophe' unless the Govt steps in and helps rescue these corporations (e.g. auto makers). This is not even feigned socialism, this is just their failure to accept the current situation with their judgment clouded by super inflated images of themselves. Somebody at the helm needs to set an example and accept failure gracefully - can the President elect do it ?

Schiff puts it beautifully - recession and loss of jobs is nothing but the market forces adjusting themselves. True, loss of jobs are painful. But one can't celebrate freemarket capitalism till yesterday and shed tears about job loss in the economy the next. Recession is good. It will free up capital and resources and offer them to a better management to take up the reins and for the economy to flourish. If handled well, the US could come out of this recession with top-class corporations making the best products and services within a few years replacing the likes of GM. I think of it like the body having a high temperature or fever to flush out antibodies. One feels that the sooner this sinks in and the Govt starts acting accordingly, the sooner and less painful the recovery will be.

Combined with the perspective of Perot on the fiscal policy of US (, I am convinced that a period of conscious recession (conscious is the key word here) will do the US economy a great deal of good and will show to the rest of the world its maturity as a free market economy. Trying times for Uncle Sam!


Karthik said...

That there are thinktanks that still deny the mismanagement is surprising to me. But your 'accepting the pain' strategy, while being true in principle, sounds masochistic. There can be a middle ground where the government can infact step in to reduce the overall pain to the economy. (This need not necessarily be driven only to the common man)

Afterall, deregulatory policies had as much a role to play in all this as much as mismanagement and crooks. To deny the lessons of deregulation, is to be religious - in the free market. :)

Gokul S said...

In fact, failing to do so will hurt more - just how masochistic will that be ? I do not know about deregulation and its effect in the crisis today. But bail-outs and 'reducing overall pain to the economy' do not qualify as regulation. I think they are short sighted and hurtful in the long-term. They will take the sap out of any enterprising economy.

One more theme that keeps recurring nowadays is disillusionment with the economic policies of the left, center and right of the political spectrum. After almost three hundred years of global experiments with democracy, we still haven't as a human race found a stable economic model - once a economic crisis happens, each side blames the other ('over-regulation', 'greedy' etc.) but all governments all over the world respond exactly in the same manner - its almost as if political philosophy is expendable in an economic crisis.