Are Recessions All That Bad?

by Vince

As I read over Ezra Klein’s post that described the recovery-less recovery (more found here), a few words and phrases stuck out to me.

As Wolfers suggests, these numbers solve the mystery in the labor market. This isn’t about confidence or uncertainty or regulations or any of the other bankshot explanations we’ve been using to explain why unemployment seems stuck even as the economy rebounds. The economy isn’t rebounding. Demand isn’t returning. And without demand, there can’t be jobs.

Emphasis from here on out is from me. In terms of demand, is it all that bad for a country to scale back it’s purchases, it’s expenditures, and possibly live more within their means? Banks, for one, are not giving out loans as easily. I found this out over the past week. With a proposed deal I negotiated with Wells Fargo, I would of been facing a 40% mortgage payment to income ratio. The banks today want that ratio to be between 20% and 30%. Five years ago, I could have easily gotten a loan with a 40% ratio. I speak on this based on friends and family who have in fact received loans before the Great Recession with roughly 40% ratios. Banks are being more careful, people are not selling because the housing bubble has burst, and those willing to make moves have to cross their t’s and dot their i’s to prove that they truly will make x in a given year, not just think or hope they will.

Meanwhile, we’re in an economic crisis in which the main problem is too little spending.

Cutting spending and budgets in a recession does hurt an economy but, again, too little spending is not inherently bad. If anything, this Great Recession has helped us feel the purchases we make (credit cards numb the feeling of purchases. We do not see the actual money come out of our wallets or purses but only flash a piece of plastic. We delay this feeling from hitting us until later on).

I stand by less spending and lower demand as good signs for simplicity and understanding our behaviors. Whether these signals are actually making cognitive connections with fellow Americans, I cannot say for sure.

One final note: yes, over 9% unemployment nationwide (with that 2-3x the case for minorities – cry me a river white America) is bad. I will not deny that reality.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: