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Recession

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Recession

The Real Reasons Economies Shrink and What to Do About It

Basic Venture,

15 min read
7 take-aways
Audio & text

What's inside?

Take the mystery out of painful economic downturns.

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Editorial Rating

8

getAbstract Rating

  • Analytical
  • Overview
  • For Experts

Recommendation

Many people think they understand recessions, often seeing them as inevitable or as a necessary economic reset, but the truth is more complex. In this intriguing, deeply researched text, economist Tyler Goodspeed challenges many commonly held assumptions about the causes and effects of economic downturns. Goodspeed draws on a wealth of historical examples to unpack why recessions are difficult to forecast and why they rarely stem from a single, knowable cause or follow clear patterns. His grounded way of contextualizing recessions is useful for policymakers and lay readers alike.

Summary

Recessions may seem predictable in hindsight, but there is no dependable way to foresee when a downturn will occur.

People often talk about recessions as if they are predictable. Yet the historical record is filled with illustrious names who have tried — and failed — to prove, empirically, that downturns follow clear, repeatable patterns or that you can forecast them by tracking built-up weaknesses in the economy. Periods of expansion never last forever. But there is no dependable way to identify exactly when or to see — other than in hindsight — precisely why the confluence of forces that actually trigger a recession does so. One recession indicator, the Sahm Rule, created by former Federal Reserve economist Claudia Sahm, has proved fairly reliable. However, this “rule” does not attempt to predict future economic downturns; it merely confirms that one is already underway.

Someone who is always warning others about a recession will inevitably be right at some point — like Harvard economist Nouriel Roubini, whose longstanding predictions of a devastating economic crash finally came true with the arrival of the 2008 financial crisis. However, that does...

About the Author

Tyler Goodspeed is the chief economist of ExxonMobil. He holds PhDs in economics and history from Cambridge and Harvard and has chaired the White House Council of Economic Advisers.

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