Below, Tyler Goodspeed shares five key insights from his new book, Recession: The Real Reasons Economies Shrink and What to Do About It.
Tyler is currently Chief Economist of ExxonMobil. Previously, he held faculty appointments in economics at Oxford, Stanford, and King’s College London, and chaired the White House Council of Economic Advisers during the 2020 pandemic recession.
What’s the big idea?
Economic recessions are periods when an economy doesn’t just slow or stop growing, but outright shrinks. We worry a lot about recessions, but what actually causes a recession? And how do they end? By looking back at history, we can better understand why economies contract.
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1. Economic expansions do not die of old age.
If recessions were the consequence of systematic errors, imbalances, or excesses that accumulate during economic growth, we would expect the likelihood of recession to increase the longer an economic expansion has been underway. But I found that over the past four centuries, a 10-year-old economic expansion is no more likely to die than a one-year-old expansion. Like Peter Pan, economic expansions simply do not grow old. In contrast, recessions do die of old age, and always have. Most recessions are over within a year, and the vast majority within two years.
2. Long expansions don’t make for worse recessions.
The depth, speed, and duration of a recession have nothing whatsoever to do with the height, speed, or duration of the preceding expansion. Worse recessions simply do not, on average, follow higher, faster, or longer economic expansions. Economic booms do not precede economic busts. But deeper, faster recessions are typically followed by higher, faster recoveries. The harder and sharper the dip, the bigger the rebound.
3. Recessions don’t cleanse the deadwood.
It is simply not the case that recessions serve some constructive cleansing function, clearing out economic deadwood and reallocating resources to more productive enterprises. Several years on from a recession, economies typically look remarkably similar to how they would have looked had they continued uninterrupted along long-run trends.
4. Borders tend to contain recessions.
Though we tend to think of recessions as globalists—affecting multiple countries at once—they are often quite patriotic, stopping at the border. The United States has long been much more recession-prone than the United Kingdom.
In just the last 200 years alone, the United Kingdom avoided recessions in 2001, 1970, 1960, 1957, 1953, 1948, 1937, 1923, 1913, 1887, 1869, 1865, and 1829—each of which marked a U.S. recession. At 25 years old, the longest UK expansion on record was more than twice as old as the longest ever U.S. expansion.
5. The depth and duration of recessions stay remarkably constant.
Though economic expansions have been steadily surviving longer, the depth and duration of the typical recession have been remarkably constant over time. The glaring exception was the highly militaristic period from the start of World War I in 1914 until the end of World War II in 1945. In both the U.S. and the UK, this period featured several exceptionally long and deep recessions. But outside that exceptionally volatile period, the life expectancy and the depth of recessions are no different in the 21st century than they were in the 19th or even the 18th centuries.
Economic recessions are not an inevitable, remedial consequence of the economic expansions preceding them. They are instead the result of adverse, unanticipated shocks: war, pandemics, supply chain disruptions, and energy price spikes. Recessions are not the correction of excessive or unsustainable growth during preceding periods of economic expansion. Rather, expansions are the correction of negative deviations from trend growth during preceding recessions.
And though we rightly worry a lot about recessions, the long-run trend in economic growth matters much more for prosperity and human flourishing. After all, though much less recession-prone than the U.S., the UK is also at least 30 percent poorer per person than the U.S. So, at the end of the day, we ought to be at least as concerned about the majority of years in which the economy expands as we are about the minority of years in which it contracts.
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