The peremptory cleansing effects of a recession seem most useful to the finance industry itself. Everywhere else, the requirement that one’s revenue consist of payments for *something* limits how uselessly unproductive a given company can be. Even if demand for pet rocks is inflated by cheap credit, or prices driven low by overinvestment…
The peremptory cleansing effects of a recession seem most useful to the finance industry itself. Everywhere else, the requirement that one’s revenue consist of payments for *something* limits how uselessly unproductive a given company can be. Even if demand for pet rocks is inflated by cheap credit, or prices driven low by overinvestment in production, there are only so many pet rocks one person will want. Marginal demand eventually always reaches zero.
But money, there’s no limit to demand for money. Any number of elaborate Ponzi schemes fed with zero-interest lending can exist, and in fact the more the better because that makes it harder for the SEC to investigate. Zero rates mean you can promise quite ordinary returns - 5% say - which makes it much easier to string people along for years.
Of course this finance area also includes negative-profit startups. Generally those are a small part of the economy, though.
In other words, we need recessions to clean out the financial sector, but they are harmful to the productive sector. The financial sector has no natural limits, while the productive sector does. This makes a lot of sense from a systems point of view. Productive markets can be saturated, financial markets cannot.
The peremptory cleansing effects of a recession seem most useful to the finance industry itself. Everywhere else, the requirement that one’s revenue consist of payments for *something* limits how uselessly unproductive a given company can be. Even if demand for pet rocks is inflated by cheap credit, or prices driven low by overinvestment in production, there are only so many pet rocks one person will want. Marginal demand eventually always reaches zero.
But money, there’s no limit to demand for money. Any number of elaborate Ponzi schemes fed with zero-interest lending can exist, and in fact the more the better because that makes it harder for the SEC to investigate. Zero rates mean you can promise quite ordinary returns - 5% say - which makes it much easier to string people along for years.
Of course this finance area also includes negative-profit startups. Generally those are a small part of the economy, though.
A very interesting point… Thanks...
Especially if crisis bailouts of institutions includes bailouts of investors and management, the huge political economy mistake of Geithner-Bernanke.
In other words, we need recessions to clean out the financial sector, but they are harmful to the productive sector. The financial sector has no natural limits, while the productive sector does. This makes a lot of sense from a systems point of view. Productive markets can be saturated, financial markets cannot.