The Motley Fool Discussion Boards

Previous Page

Investment Analysis Clubs / Macro Economic Trends and Risks


Subject:  Re: Here's your chance: Balance the Fed budget Date:  1/3/2007  6:06 PM
Author:  warrl Number:  200272 of 603175

Overcapacity is a therefore a chronic problem. Without government intervention, the result is a cycle of business collapse, unemployment, unrest, etc.
This cycle happened many times until the Great Depression.

An economy-wide downturn can occur only when a very substantial swath of the economy has to wake up from delusion and come to its senses (or, alternatively, recognize a suddenly-changed reality) at once.

But what would cause reality to change that much that suddenly, or cause that large a swath of a healthy economy to undergo delusions all at the same time?

The most common reasons for sudden massive economic change: war - government; drought and famine - in the last century or so, government; sudden shifts in international relations - government. (In all cases, not necessarily the government allegedly supervising the economy in question.)

The most common reasons for mass economic delusion: inflation - government; failure of a central bank and its currency - government; grants of privilege - government again - that the government doesn't actually have the power (or will to spend the resources) to enforce upon the world.

There is no known case of a recession occurring in an industrialized economy in the absence of specific government actions that a rational, economically knowledgeable person would expect was likely to cause a recession. In the case of the Great Depression, the hard part is not finding a government cause, but rather, figuring out how much damage each of the many causes did.

But thankfully we have government to protect us from recessions.
Copyright 1996-2020 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us