From 1980 to 2008, moderation was the most prominent feature of the recessions in that period; indeed, some economists (certainly not all) described the period as the “great moderation” and suggested the business cycle had been tamed. For anyone younger than 40, this is their first experience with serious economic stress; that fact is significant.
We will never eliminate the business cycle; it always will be with us. Business cycles are driven by human nature and technology. In its simplest form, a recession/depression is a period of excess production induced by a bubble. Those bubbles are frequently created by government policies, such as demanding banks make subprime home loans and then guaranteeing the packaged subprime loans through Fannie Mae and Freddie Mac. It is abundantly clear the government had its hands on the wheel, along with the private sector, when the economy “went into the ditch.”
Another bubble awaits; indeed, the government is laying the groundwork now. The next bubble will be the collapse of a subsidized green energy industry. It is both amusing and disgusting to watch the social engineers feign shock when the tiger behaves like a tiger after they poke him with a stick. They complain long and loud about how bad the tiger is and refuse to consider how wise it was to poke him with a stick in the first place.
Market economies are prone to overproduction because the incentives for personal gain work so well. By contrast, chronic shortages are the primary characteristic of centrally planned economies because individual incentives do not exist, or work very poorly. Furthermore, entropy causes centrally planned economies to collapse.
During the current crisis, big government advocates claim the current recession proves government should be in charge, rather than the private sector. Oh? Why is this time any different than the other 41 recessions/depressions, particularly since the current crisis is not nearly as bad as previous depressions? Further, what proof do we have that the government is more likely to get it right, when the historical record clearly indicates more government control leads to a less successful economy?
If big government advocates want to make this case, let’s have that debate; but, stick to the facts, no moral posturing, character attacks or questioning motivations permitted. Is the left willing to discuss this question only on the merits? I hope so, but I doubt it.
Bob Martin is emeritus professor of economics at Centre College.