Irony Alert: “Outlawing” Recession Has Made a Monster Recession Inevitable
Those who came of age after 1982 have never experienced a real recession, and so they’re unprepared for anything other than guarantees of rescue and permanent expansion.
The mainstream view is that recession is caused by economic-financial factors. The mainstream view is wrong, for recession is ultimately caused by Wetware1.0–human nature. Human nature–our innate attraction to windfalls and something-for-nothing, our ability to habituate to extremes and normalize counterproductive dynamics–manifest as economic-financial factors, but these are effects, not causes.
The mainstream view is that recessions are bad, so let’s make sure they never happen. In other words, let’s outlaw them by flooding the economy and financial system with Federal Reserve monetary stimulus and federal stimulus via increased deficit spending.
The history of the past 40 years “proves” these policies effectively eliminate recession: all recessions since 1981-82 have been shallow and brief, basically a spot of bother that lasts one quarter.
Our Wetware1.0 has responded to this “no recession guarantee” in ways that count as unintended consequences. Massive “emergency” stimulus that became permanent policy has created a bubble economy in which low interest rates and unlimited credit for those who are more equal than others has sparked demand for income-producing assets, which then sparked a speculative mania.
We’ve habituated to both the bubble economy and the speculative mania so that these are now considered normal. But behind the comfortable normalization, something counterproductive has taken hold: we’re now addicted to the bubble economy and its crazed twin, speculative mania. If the bubbles pop and speculators go broke, the economy and financial system will both implode.
Without ZIRP (zero-interest rate policy), capital actually has a cost, and the bubble economy cannot survive if capital has a cost. Once capital has a cost, then speculation becomes risky, and speculation cannot survive if risk actually has a cost.
…click on the above link to read the rest…
