Don’t fear the “R-word”

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Economists tremble at the appellation’s very utterance. Politicians descend into denial at the term’s deployment in the mainstream media. And, when the “R-word” hovers into view, regular folks batten down the hatches and check the condition of their rainy day funds stored neatly under their mattresses.

But are recessions really all bad, after all?

Sure, they tend to increase the amount of joblessness in society. They devalue personal savings and investments. They dampen business opportunities, and they generate the sort of fear and loathing that a 100-year blizzard often engenders.

Now that Canada is in one (a recession, that is), despite protestations to the contrary of our fearless, federal leaders, we might properly expect a slow, agonizing grind in the months, or even years, ahead.

Still, it ain’t necessarily so.

According to an item on the investopedia website, posted by financial writer Chris Seabury, recessions enable economies to “clean out the excesses. During this process, inventories drop to more normal levels, allowing the economy to experience long-term growth as demand for products picks back up.”

What’s more, these cyclical downturns – typically identified after the gross domestic product shrinks in two consecutive months – have an almost refreshing, levelling effect. As Mr. Seabury writes, “Recessions. . .help keep economic growth balanced. If the economy grew unchecked at an expansionist rate for many years, this could lead to uncontrolled inflation. By having recessions. . .consumers are forced to cut back in response to falling wages. These falling wages force prices to drop, creating a situation in which the economy can grow at normal levels without having prices run away.”

They can also “create massive buying opportunities in huge asset classes. As the economy runs its course, the markets will readjust to an expanding economy.”

Notably, perhaps, “economic hardship can create a change in the mindset of consumers. . .(who) stop trying to live above their means (but) within the income they have. This generally causes the national savings rate to rise and allows investments in the economy to increase once again.”

In fact, writes Stijn Claessens and M. Ayhan Kose in the International Monetary Fund’s research department, “There were 122 completed recessions in 21 advanced economies over the 1960–2007 period. Although this sounds like a lot, recessions do not happen frequently. Indeed, the proportion of time spent in recession – measured by the percentage of quarters a country was in recession over the full sample period – was typically about 10 per cent.”

So while recessions can clean out the pipes and tune up the engine of any economy, they don’t last forever, even if it only seems that way.

In my adult life, I’ve gamely weathered four downtowns – 1981-82; 1991-1993; 2000-2001; and 2008-2009. They didn’t kill me. In fact, I might even say, they made me stronger. Certainly, they made me smarter about debt, equity, and never taking anything for granted in the precarious, capricious world of money management and the revolving doors of the labour market.

None of which is to say that economic dislocation is preferable to long-term stability. Still, it’s worth noting that droves of Canadians endure near-permanent states of recession thanks to patently unfair, negligent policies of various governments at every level.

And, as this country appears to be heading into another one of its multi-month, economic head colds, only the mighty among us will truly fall.

In this company, of course, belong politicians who overpromise and underestimate their own power to affect the course of human affairs just in time for a general election.

They do, indeed, need fear the “R-word”.

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One thought on “Don’t fear the “R-word”

  1. Benoit Essiambre says:

    I strongly object to this. It is Austrian pseudo economic nonsense. It is akin to trying to rectify a family’s finances by reducing how much they work or by forcing them into unemployment so they “change their mindset” about being able to buy stuff.

    It creates long lasting damage to people not only during the period of underemployment but long after through loss of skills, loss of retirement funds and general divestment in their own welfare.

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