I’m pretty sure I know what you’re thinking… “How in the world could a recession be good?” A recession is a painful thing that nobody likes to go through. It’s an exercise in endurance and it’s all the more painful since we’ve had such outstanding growth since our last recession. But it’s because of that growth that we need a recession.
Let me make an analogy to nature. We need a recession like a forest needs forest fires. A forest fire is a violent, painful experience for the forest and all who live in it. In a matter of days or weeks, everything is seemingly wiped out and reduced to a field of char. But once the flames have disappeared and the rain returns, new life springs from the rubble. The fire removed all the old growth and tree corpses, returned their nutrients to the soil, and prepared the land for new growth. Young trees and grasses sprout again, the animals return, and the now-young forest thrives. It’s a natural cycle that trades shorter-term losses for long-term gains.
Just like the forest, our economy is an ecosystem of a different shade of green. Over time, the shells of dead and dying companies litter the economic landscape, old tried-and-true methods and thoughts aren’t so true anymore, and we discover that we’ve spread ourselves a little too thin. The situation begs for a forest fire to come and clean up the waste.
As we enter a recession, it gives us a chance to analyze our books a little closer. In order to save money, companies and individuals both pull back on the riskier investments, cut what waste they can find, and streamline their operations. In the process, revenues for some companies dry up and, following the Darwinian principle of natural selection, they die and free up their resources for a “better-suited” competitor to take their places. It’s a painful time of contraction with lost jobs, stagnant salaries, and increasing costs. It’s difficult, but it’s all part of the cycle that will make the economy stronger as we leave the recession.
That is, as long as we leave it alone and let it run its course.
Just as the case in nature, when we start messing with an ecosystem we invariably make it worse. By taking drastic measures to preserve our recent “growth at all costs” behavior, we only delay the pain and risk making it last longer or have worse effects. What we’re suffering now is the delayed pain from the tech bubble burst that we just shifted over to the housing market. It’s now a fact that the collective “we” messed up when it came to plummeting interest rates, consumer credit, and sub-prime mortgages. If we don’t let the forest fire come in and burn out our mistakes – if we continue to prop up an economy built on false assumptions – when the fire does come it will have plenty more to burn.
I’m not looking forward to a recession by any stretch of the imagination, but at the same time it’s bitter pill that we must swallow. We have to let the weaker foundations, bad bets, and wasteful investments fail and get out of the way for the growth that will come afterward. The longer we avoid the inevitable, the worse it will finally be.
It’s time to get it over with and take our medicine – let the recession happen and look forward to the field of green that will sprout from the devastation.
{ 3 trackbacks }
{ 4 comments… read them below or add one }
I agree with the general point of this article, we are having a cleansing we need to have. Painful but we will come out better as a nation when it is over. Or the rich will just get richer.
Andy.
Fantastic article! I love the forest fire analogy. We own land up in the AZ mountains and we are well aware of issues surrounding this.
One of the problems we face is that a good forest fire has not gone through our area in quite a while and therefore much of the land is overgrown, making it FAR more dangerous than if fires regularly go through. The solution is to do manually cleaning to go back to how it would look had a fire gone through…we’ve had to thin out trees (cut down over half), ladder remaining trees (cut off dead limbs on the bottom), rake up all of the dead pine needles and remove them, remove dead and fallen trees…all to get it back to a “healthy forest” status.
In fact, by taking care of this maintenance, we are creating a forest in which a fire can go through and do very minimal damage…it will clear the ground, burn the small, unhealthy trees, and underbrush (thereby returning nutrients to the ground) but won’t ever get large enough or out of control to climb the trees and leap from tree to tree, which would eventually wipe out the entire forest.
Your analogy works very well as we need to do a lot of trimming and maintenance to get our personal finances back to a “healthy” perspective, not to mention the economy as a whole.
I agree, but the Federal Reverses monetary policy, bailouts and tax rebates are prolonging the inevitable recession. A controlled fire can burn everything in a very short time, but the Fed keeps putting out the fire.
So, not much has burned and the green grass is not growing because the old trees have not been burned up yet. This is likely to go on for several years with the new presidency.
Love your analogy to the benefits of a recession being similar to those of a forest fire. I was running with that theme when I wrote a post on the positive-side of recessions this morning, and when I stumbled upon this post of yours I just had to quote you & link back here.
http://www.thedailyanchor.com/2009/01/28/the-benefits-of-a-recession/