Government lacks magic bullet to kill recessions

Those who study a country’s economic conditions, mostly macro-economists, track general trends – inflation, unemployment, productivity, comparative strength of the currency, et cetera. But the basics of all these are mostly local matters, all about what happens to you, me, our neighbors, all about what we decide to do with our income and other liquid assets.

At times I feel very much inclined to go shopping for stuff I would like, to replace some old things with newer ones, to take advantage of some innovative items I became aware of, or to simply stock up on things I like a lot, like novels, food and so on. Now and then I may go overboard with all the buying, get some big items as when I recently bought one of those mini-hot tubs I have been dreaming about how to relax my aching back, or a VCR to DVD converter to preserve some recordings for the future. And it was Christmas recently and I may have overdone it with gifts for my children and myself.

After I do some of this over-the-top shopping for a while I tend to get scared and tighten my belt a bit, maybe even a lot. Instead of eating out I’ll just cook up something at home for several days; instead of taking trips to see friends up and down the coast of California, I decide to stick to those novels I bought and read and read and just read some more. And no more purchases of big items, nor home improvements for a while, certainly no new shoes or clothing. In short, I am inclined on such occasions to get out of the market except for services and goods that I need on a regular basis – but even these I may cut back so as to recover economically!

When last summer a large chunk of cash was stolen from me in Europe, as well as quite a lot of stuff I had carried with me because I was going to attend a wedding and bought gifts to bring home, I did experience some panic and stopped buying. I did replace the gifts but waiting a while before I got a new suit (when I was invited to another wedding). But to make the replacements less of a burden, I gave up other stuff. But I also went on a search for new sources of income – I lined up some speaking gigs and conferences I hadn’t planned to do beforehand.

When I was robbed, I felt very nearly as I feel around April 15 every year. But that is a bit more predictable, within a certain amount of what will be extorted from me, so I can prepare for it better. But I usually react to having to come up with the funds (so as to avoid prison) by cutting back, saying no to purchases I’d normally make.

Now what if most people in the American, even the world, economy decide to cut back on their purchases? What if they all become terribly cautious about committing to spending? Millions of people stay away from the malls. Millions cut back on driving, going to movies, even visiting their dentist. What then? Well, I suspect this is when a recession is likely to commence. Add to this all the wasteful spending of the taxes extorted from us, and the corresponding increases of our tax bills, hidden or overt, and this is likely to reduce economic activity and, therefore, income and savings.

To this, of course, politicians respond by promising to perform magic. They talk of stimulus packages – but where are the resources support to come from? Usually from printing more money, going into more government debt, or robbing Peter to make things a bit easier for a while for Paul. But, of course, one cannot get blood out of a turnip, and none of this makes up for the reduced economic activity, the pause in consumption, and so forth.

Politicians have no bona fide magic – they only pretend to have it. So they will wave their hands about uselessly, maybe fooling a bunch of people with schemes of getting something from nothing. In the last analysis, however, the phenomenon of reduced economic activity is not something anyone can avoid. It happens. Most often it happens sporadically, not all at once across the country or the world, but at times the withdrawals tends to be nearly universal and then they will show up in the macro-economic statistics as somewhat sizable dips, a recession, even a depression at times. Trying to pretend that this cannot happen or can be easily avoided merely makes things worse.


Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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