Our first mini-recession?
AFAIK, the US has never had a mini-recession, which I define as a economic slump where the unemployment rate rises by between 1 and 2 percentage points. That’s kind of weird, as all of the business cycle models that I am aware of suggest that mini-recessions should be more common that larger recessions, just as small earthquakes are much more common than big earthquakes. In these models, recessions are generally caused by “shocks”. So why don’t small shocks create small recessions?
I don’t know of any economists who have answered this question. Heck, I don’t even know of any economists who have asked this question. But FWIW, Deutsche Bank is forecasting that America will experience its first mini-recession next year:
The U.S. will tumble into a recession next year as the Federal Reserve jacks up interest rates to combat high and widening inflation, Deutsche Bank economists David Folkerts-Landau and Peter Hooper said in a report on Tuesday. . . .
Under the forecast, U.S unemployment rises sharply to 4.9% in 2024. Joblessness in March clocked in at 3.6%.
I have a policy of not forecasting things that cannot be accurately predicted. One of those things is asset prices. Another is business cycles. Instead I describe factors that influence asset prices, or that make the economy more unstable. As an analogy, I did not predict Russia would invade Ukraine this year; I suggested that Putin’s Russia was a greater threat to world peace than Xi Jinping’s China, at a time when most of our so-called “experts” were suggesting the opposite.
I will say that this post from last July is looking somewhat better today.
Tags:
9. April 2022 at 00:32
Scott,
Here is a research note from Fulcrum for you:
Has the Fed abandoned its average inflation target?
https://www.fulcrumasset.com/inst/uk/en/gavyn-blog/has-the-fed-abandoned-its-average-inflation-target/
(some annoying clicks are needed to access the actual article)
9. April 2022 at 06:46
“Has the Fed abandoned its average inflation target?”
Yes, that’s pretty obvious. I’d add that abandoning FAIT is the primary cause of the inflation problem.
9. April 2022 at 07:51
AD = M*Vt, where N-gDp is a subset and proxy. Powell dismisses money in Fishers’ “equation of exchange”: “there was a time when monetary policy aggregates were important determinants of inflation and that has not been the case for a long time.” and “It is something we have to unlearn I guess.”
Nobel Laureate Friedman nailed it down: “Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in OUTPUT.”
If output falls, “the real value of aggregate transactions”, and M*Vt persists unabated, then prices must rise faster (as in the 1st qtr. of 2022).
A recession results from a drop in the rate-of-change in money flows, the volume and velocity of money, below zero. This was undeniable using required reserves as a monetary metric (as legal reserves were driven by payments).
“For many years, reserve requirements played a central role in the implementation of monetary policy by creating a stable demand for reserves. In January 2019, the FOMC announced its intention to implement monetary policy in an ample reserves regime. Reserve requirements do not play a significant role in this operating framework.”
But the FED did not “create a stable demand for reserves”. E.g., the FED caused both the flash crash in stocks on May 6th 2010 and the flash crash in bonds on October 15th, 2014.
How so? The FED completely ignored required reserves (wrongly construed as untethered since 1995), money, money flows, and the distributed lag effect of M*Vt. And the new real variables in the time series seem to have compressed lags.
9. April 2022 at 08:27
Looking at money, one thing that’s obvious (without countervailing intervention), is that prices won’t subside significantly until the 4th qtr. of 2022. I.e., the price elasticity of demand, so-called demand destruction, won’t have much effect on the overall price level.
R-gDp has fallen significantly since the 4th qtr. of 2021, from 6.9% to Real GDP Nowcast @ 1.3%, and Atlanta gDpNow @ 1.1%.
Don’t expect a recession though. The rate-of-change in money flows bottoms in the 1st qtr. of 2022. We’ll have stagflation, business stagnation accompanied by inflation, instead.
9. April 2022 at 09:01
The mean expected NGDP growth path (NPV) is only down to 4.8%, so there’s still a ways to go to get back to the pre-pandemic 4% trend. Obviously, the added forward guidance has been pretty gentle so far.
9. April 2022 at 10:08
I guess Putin has nukes.
But in any conventional sense Putin is not more dangerous than Xi and the war proves this. He can’t even defeat on the field of battle a 10k per capita country.
9. April 2022 at 12:56
Sean, Not sure if you are serious or just trying to be a troll. I hope it’s the latter, as being unwilling to admit that you are wrong is not a good look.
BTW, China was unable to defeat Vietnam in 1978.
9. April 2022 at 17:10
ssumner wrote: “I suggested that Putin’s Russia was a greater threat to world peace than Xi Jinping’s China”
Aside from threat to world peace, China spread covid.
As for peace, does China not want Taiwan like Russia wants Ukraine?
9. April 2022 at 22:40
Economists don’t appreciate chaos.
Most will accept that there are dynamics that are auto-stabilizing and some that are self-reinforcing (destabilizing). But they do not appreciate the consequences.
Feedback loops create chaos, and economies are subject to it. Economies will shock themselves because that is what chaotic systems do. And after the fact, the economists and historians will rationalize the whys.
9. April 2022 at 22:43
Actually, I should be more charitable to the economists. Most professions economists do accept that markets are at the very least unpredictable and indeed chaotic.
The press, pundit class and armchair economists are far worse in this regard.
9. April 2022 at 23:14
There are ways to force some measure of stability on systems that are naturally unstable and chaotic. That is what the entire discipline of control theory is all about. Perhaps there should be a few engineers with expertise in control theory on the FOMC.
My guess is that their first recommendation would be to kiss goodbye the idea that you can stabilize a complex and inherently unstable system like the economy just by holding a meeting every month or two. You’re almost certainly going to have to provide more frequent–maybe even daily–nudges and feedback to keep everything from running off the rails. I think Scott has made suggestions like this.
10. April 2022 at 05:15
I’ll make a weak argument that the early 90’s recession and the early 2000’s recession were “mini”—although they do exceed the unemployment rate criteria you define above. My personal experience with recessions is limited to a total of four, and the outsized impact of 2008-2010 skews my perceptions.
How much credit should we give the Greenspan Fed for managing monetary policy? Compared to Bernanke and Powell he did a lot better, but I think he benefited from greater political stability and the U.S. tech boom. Low energy prices also probably helped.
We’d be lucky to have a repeat of the ’90’s. Right now, things feel more like the early ’80’s–but I don’t remember that far back so I’m only looking at charts and talking to old-timers who lived through that.
10. April 2022 at 07:44
re: “How much credit should we give the Greenspan Fed for managing monetary policy?”
Greenspan caused “Black Monday”. The “Great Moderation” was due to the impoundment of monetary savings (funds held beyond the income period in which received), in the payments system (the elimination of Reg Q ceilings), which destroyed the transactions’ velocity of money. There increasingly became a larger volume and greater proportion of interest-bearing saved deposits. This lowered nominal interest rates. It reduced the velocity of circulation.
In Alfred Marshall’s “Cash Balances Approach” (the demand for money), K = “the length of the period over whose transactions purchasing power in the form of money is held”. K is related to Vt; it is the reciprocal.
Contrary to Sumner, banks aren’t intermediaries, they don’t lend deposits. All bank-held savings are therefore lost to both consumption and investment. This is the source of the pervasive error that characterizes the Keynesian economics.
10. April 2022 at 07:46
Thought you’d appreciate this ridiculous Fed quote:
FED’S MESTER: INFLATION IS BEING DRIVEN BY REASONS OTHER THAN MONETARY POLICY. THE FED’S GOAL IS TO PROTECT IT FROM BEING EMBEDDED.
10. April 2022 at 08:09
Doug, Yes, economies face shocks like Covid. The goal of monetary policy is not to prevent shocks, it’s to avoid adding monetary shocks onto non-monetary shocks. Don’t make it worse.
In other worse, sometimes “economies shock themselves” to use your terminology, and sometimes the Fed shocks the economy. In late 2021 the Fed shocked the economy.
David, 2008 was an unusually large recession; the previous two were fairly normal.
Vince, You said:
“Aside from threat to world peace, China spread covid.”
The US has had about 1/2 million Covid deaths in the past year. China’s had 2. Yes, it’s all China’s fault.
Effem, Sad.
10. April 2022 at 08:25
SS: “I suggested that Putin’s Russia was a greater threat to world peace than Xi Jinping’s China, at a time when most of our so-called “experts” were suggesting the opposite.” – straw man noted, “most” says who? And China is watching the world’s response to Russia before China acts on Taiwan. If the world did not respond to Putin’s aggression as they have, you can bet China would invade Taiwan by now.
Sumner understand geopolitics about as well as he understands the Covid-19 virus…
10. April 2022 at 11:51
On the contrary, there are only “mini” swings in the market. The big swings are the result of govt & Fed intervention.
“BTW, China was unable to defeat Vietnam in 1978.”
If you disagree with Sumner, apparently that means you are a “troll” – whatever that means.
Comparing the China of 1978 to the China of 2022 is – to put it nicely – stupid!
China is by far the greater economic threat to America.
The war in Ukraine is also NOT unexpected. What did you expect after 1.5B in arm sales, and a seven year civil war on the RU border? Did you expect the Bear to blow a kiss?
We can play dumb and deny this, but international journalists have seen the footage; they’ve spoken to the people who live there, and despite the media saying “the world is against RU”, nothing could be further from the truth. We don’t have much support – at least not from anyone who matters. India and China constitute about 30% of the world population. They don’t care about Washington mandates. They want their natural gas, and they will simply stop using Swift to get it.
We also refuse to recognize that the AZOV battallion is clinically insane. We did recognize this fact in 2013, but after the 2014 coup the AZOV battallion became politically tolerable to the west as long as their ire was aimed at ethnic Russians. Not a good policy!
When we speak of “support” for American international policy, we are essentially speaking of western europe. That’s it! Nobody else. We have no support in South America, Africa, or Eastern europe. And much of Asia only remains neutral, because they see the threat of the CCP on the doorstep. But if Washington can’t protect them, they will quickly change their tune!
2 + 2 doesn’t = 5.
10. April 2022 at 12:04
Prepare your friends and families for collapse gentlemen.
The consequence of these sanctions is a final battle in the financial war which has been brewing for decades. You do not sanction the world’s most important source of energy exports and the marginal supplier of a wide range of commodities and raw materials, including grains and fertilisers, without damaging everyone but the intended target. Worse still, the intended target has in China an extremely powerful friend, with which Russia is a partner in the world’s largest economic bloc — the Shanghai Cooperation Organisation — commanding a developing market of over 40% of the world’s population. That is the future, not the past: the past is Western wokery, punitive taxation, economies dominated by the state and its bureaucracy, anti-capitalistic socialism, and magic money trees to help pay for it all.
10. April 2022 at 12:53
Obviously not trolling. Sure Putin is more aggressive. But he’s in charge of a demographically collapse people. To be a grave threat you need an ability to project force.
The nuke thing does made Putin a little dangerous as he could end the world. But Russia lacks any means to push the world in their direction. He only has an end world button and not a button to impose his ideologies on the world. China likely has a stronger conventional military now and has orders of magnitude more soft power thru the world due to economic might.
Putins a gas station with nukes. In the medium term we can find a new gas station.
10. April 2022 at 13:44
> FED’S MESTER: INFLATION IS BEING DRIVEN BY REASONS OTHER THAN MONETARY POLICY. THE FED’S GOAL IS TO PROTECT IT FROM BEING EMBEDDED.
It’s like watching an old person experiencing “pedal confusion” ram their vehicle straight into the side of a building. Even after an accident of that nature the driver typically insists there was some malfunction with the vehicle. They simply cannot process that they alone are the cause of everything that happened.
10. April 2022 at 14:23
Yes, seeing longer-run core PCE inflation expectations exceed 3% was my wakeup call, which was several month s late, in retrospect. I was in the let’s risk running it hot rather than tight crowd, until it became obvious that the risk of recession just from running the economy hot, in absence of over-tightening, had grown substantially. My approach left little room for the reasonably unexpected, or for policy errors, and so was very flawed from a risk management perspective.
Now, while the risk of recession is still less than probable, it is rather high. It’s probably in the 40-45% range, which up to 2.5 times the baseline rate for a single year. And or does seem very likely that if a recession occurs, it will be mild and probably last no more than 2 quarters.
Education and experience matters for discretionary monetary policy, but not for a rule-based system, such as NGDPLT would represent. In that case, one doesn’t even need an FOMC, or human decision-making at all.
10. April 2022 at 16:26
ssumner, responding to a claim that China spread covid, wrote: The US has had about 1/2 million Covid deaths in the past year. China’s had 2. Yes, it’s all China’s fault.
Are you agreeing that China spread covid? Are you sarcastically denying it, and using a straw man argument for your position?
No comments about Taiwan? Is your Russia fixation more TDS?
10. April 2022 at 16:34
Sarah wrote: 1. “Comparing the China of 1978 to the China of 2022 is – to put it nicely – stupid!
2. China is by far the greater economic threat to America.”
1. Yes, a terrible comparison. I would call it disingenuous.
2. That’s right, and economic warfare may be the biggest threat.
BTW, with warfare becoming economic, why the hell do economists continue to tout completely free trade? Get real!
10. April 2022 at 17:29
Sarah, Gotta love commenters who complain about being called Russia trolls, and then defend Putin’s invasion of Ukraine.
Sean, There is zero evidence that China has an effective conventional military. With the exception of Taiwan (which the US considers Chinese territory), China has no interest in creating a Greater China. Russia has always been an expansionist military power, and still is. The two cases are not remotely similar.
Vince, You asked:
“Are you agreeing that China spread covid?”
No, at least no more than other countries.
“BTW, with warfare becoming economic, why the hell do economists continue to tout completely free trade?”
Because countries that do a lot of trade are less militaristic than countries that do very little trade. Notice that Russia recently started a major war, not China.
10. April 2022 at 18:01
I’m more concerned about the China threat than the author here, but I certainly hope we can avoid a cold war with China and that we can increase trade, without sacrificing national security.
While China has not historically been expansionist, that doesn’t mean that they never will be, or that they won’t intensify conflicts in Asia as their power grows and they assert themselves. That said, if I had to choose between Scott’s approach to China and that of the China hawks, I’d take Scott’s approach. He recognizes that the huge benefits of peace easily outweigh any benefit to be gained in a cold war.
The worst China hawks seem to be okay with just throwing away the world’s largest market of buyers, and one that’s still growing rapidly, mainly out of completely irrational fears and, in some cases, bigotry.
We can trade with China and work with them internationally where there are confluent interests, while cooperating with allies to contain China militarily. That assumes China does not insist on more conflict, of course, but it should be our aim to do as much business with China as possible.
10. April 2022 at 18:24
ssumner wrote: 1. [China spread covid] … “no more than other countries.”
and 2. … “countries that do a lot of trade are less militaristic than countries that do very little trade.”
1. This is like dealing with a Holocaust denier. Covid started in China, and China concealed it while Chinese were traveling around the world infecting other countries.
2. I love the United States, but I’m willing to admit that the US might be the most militaristic country in the world. Regardless, economic warfare is economic warfare. By warfare, I include tactics such as trade sanctions, currency manipulation, and boycotts. Free trade opens a country to those weapons. I’m not anti-trade at all. But free trade is not free. The price is vulnerability.
10. April 2022 at 18:49
vince,
I’m just going to guess you have no idea what a cold war with China would cost, not only in terms of lost trade, but also fiscally? You are aware that China has had a larger economy than the US in real terms for years now, right? And China is still growing faster than the US, and should for the foreseeable future.
This would not be like the cold war against the Soviet Union. China has a vastly larger economy, much brighter economic future in terms of growth(with or without us), and they have an increasingly competitive tech sector that can increasingly produce cutting-edge military hardware, software, etc.
Increasingly, we won’t be able to counter them ourselves. We’ll increasingly rely on partners such as India and Japan.
Besides, military containment with mostly free trade is possible, so why not do both?
10. April 2022 at 20:31
Michael wrote: “military containment with mostly free trade is possible.”
Not sure what you mean by that. Anyway, free trade on our side and un-free trade by China may have put us in our current state.
11. April 2022 at 04:13
China has had 2 Covid deaths? That is obviously a troll comment—-although not sure why you wrote it. Speaking of deaths, how is it possible that we know “precisely” (at least we give out info that looks precise) the number of Covid deaths but do not know the precise number of total deaths——as the latter is simply 2019 plus our belief in 1) Covid deaths ;2)plus deaths caused by our reaction to Covid deaths. I cannot find any official information that tells us total deaths after the year 2019. If you can, I would love to see it.
11. April 2022 at 04:34
PS——I am referring to global deaths
11. April 2022 at 04:52
Scott, I wonder if the lack of small recessions has to do with what I’ll call “employer charity”. Since a mini-recession is defined based on a change in employment, the theory goes like this: employers are reluctant to lay off employees and will accept short-term losses to avoid laying people off. Only when the economy becomes bad enough that businesses start to fail will unemployment start to go up. At that point, it won’t be just a few employees laid off, it will be entire companies. So the result is either no significant rise in unemployment (but business profits drop substantially, and may be negative for a period), or a fairly significant impact to unemployment as businesses fail in a bigger recession.
11. April 2022 at 08:53
Vince, You said:
“China concealed it while Chinese were traveling around the world infecting other countries.”
This is silly. Covid was reported in the global media within a few days of the Chinese realizing they had a problem. Foreign countries were free to cut off China travel if they chose to do so, but chose not to do so until much later.
When Covid rampaged through Italy, the US chose not to cut off flights from Italy. Why?
Michael, Yes, that data is out of date with the recent surge in Shanghai, but I stand by my claim that Chinese deaths last year were trivial compared to deaths in the US.
Chris, Maybe, but the problem with that theory is that local shocks are more important than macro shocks. Most of the volatility in a given company’s output is not due to the business cycle, it’s due to factors affecting that particular company.
11. April 2022 at 09:33
Snider: ” For the whole group of 19, despite massive government intervention the level of real retail trade has now fallen behind the pre-2020 baseline (above) which really wasn’t all that great.”
https://alhambrapartners.com/2022/04/08/speaking-volumes-rather-than-fast-rate-hikes/
R-gDp wasn’t strong to begin with. N-gDp was deficient going into Covid-19.
2018-07-01 3.3
2018-10-01 3.0
2019-01-01 3.7
2019-04-01 5.6
2019-07-01 4.1
2019-10-01 3.6
2020-01-01 -3.9
11. April 2022 at 11:11
The 30% 1st qtr. decline is not 2020’s big event.
Nov 28, 2019. 09:52 AMLink
The 4th qtr. 2019 is not the problem. The 1st qtr. 2020 will be negative.
Nov 26, 2019. 07:19 PMLink
There’s no evidence of a recession, but there is a significant drop (based on the 2nd derivative) in the 1st qtr. of 2020. But that is as far out as I’m comfortable in forecasting, esp., since the Fed has changed its operating procedure.
Oct 9, 2019. 06:39 PMLink
4th qtr. will be weaker than the 3rd qtr. But it is the 1st qtr. of 2020 that looks bad.
Oct 6, 2019. 09:58 PMLink
There is a concern though — going into the 1st qtr. of 2020.
Oct 1, 2019. 05:58 PMLink
1st qtr. 2020 is even worse.
Aug 29, 2019. 07:53 PMLink
01/1/2020 ,,,,, 0.03 *a recurrent annual cycle
02/1/2020 ,,,,, 0.00
03/1/2020 ,,,,, 0.00
04/1/2020 ,,,,, 0.00
The FOMC’s mistakes are big ones. They are clearly evident in my #s. There has been a deceleration going into the 3rd qtr.
But you can take advantage of the FOMC’s mistakes (the FOMC’s fallacious interest rate manipulation), by selling short based on the 1st seasonal inflection point.
Aug 20, 2019. 09:34 AMLink
Large Time Deposits, All Commercial Banks (LTDACBW027NBOG)
fred.stlouisfed.org/…
2014…….………..5.70
2015….…….…….0.05
2016………….…-11.00
2017……. ……….7.10
2017 4th qtr.…..4.60
2018 1st. qtr.…-4.90
2018 2nd qtr.…..3.10
2018 3rd qtr.…..7.70
2018 4th qtr.….11.80
2019 1st qtr.….13.60
2019 Jan..………16.80
2019 Feb….…..19.20
2019 Mar….…..17.60
2019 Apr……….16.50
The contractionary economic impact in the growth rate of interest-bearing accounts (frozen savings).
11. April 2022 at 15:14
ssumner wrote: 1. “Covid was reported in the global media within a few days of the Chinese realizing they had a problem.”
and 2. “Foreign countries were free to China travel if they chose to do so, but chose not to do so until much later.”
1. And when was that, exactly?
2. Your TDS strikes again. Trump tried to stop it, and he was ridiculed–by Democrats–for being a xenophobe. Democrats turned it into campaign demagoguery. Meanwhile the Democrats’ rabid three-year frenzy to impeach a democratically (small D this time) elected president consumed their attention. January 2020.
11. April 2022 at 21:15
Scott,
Have you studied individual stock prices versus indexes in any detail, regarding correlations, relative volatility, etc.?
12. April 2022 at 08:12
Vince,
1. Around the beginning of 2020.
2. LOL, Trump stopped travel from China but almost all the Covid in the US was coming from Italy. Get your facts straight.
BTW, if you rely on Fox News and the National Review for your information on Covid, don’t expect to be taken seriously by people who actually know the facts.
“Meanwhile the Democrats’ rabid three-year frenzy to impeach a democratically (small D this time) elected president consumed their attention. January 2020.”
LOL, Seven GOP senators voted to convict Trump. Before Trump, not a single senator of the opposing party had ever voted to convict a president. Trump had seven Republicans vote against him, some representing conservative southern states. And you say it was all a Democratic plot?!?!? Enjoy your epistemic bubble!
BTW, in February 2020 Trump stated 14 times that China was doing a good job on Covid. If you like Trump so much then why don’t you take him at his word?
12. April 2022 at 10:41
1. How do you know when China new? As if they have an open government and transparency, LMAO.
2. Incredible he could do that. Whose support did he have for that policy alone?
Do I rely on Fox or National Review? Of course not. Do you rely on CNN and MSNBC?
“LOL, Seven GOP senators voted to convict Trump.” Seven. So what?
“BTW, in February 2020 Trump stated 14 times that China was doing a good job on Covid. If you like Trump so much then why don’t you take him at his word?”
I’m not sure if that’s true, and if it is, it needs context. What’s the relevance of that statement anyway?
12. April 2022 at 10:46
“almost all the Covid in the US was coming from Italy.”
How did it get to Italy?
14. April 2022 at 08:20
Vince, No interest in playing whack-a-mole with you.
“I’m not sure if that’s true”
Why don’t you find out if it’s true?
14. April 2022 at 16:42
“AFAIK, the US has never had a mini-recession, which I define as a economic slump where the unemployment rate rises by between 1 and 2 percentage points. That’s kind of weird”
I have a memory from when I was taking economics classes with profs from the NY Fed across the street. Hmmm…
Recession: January 1980 to July 1980
Unemployment: 6.3% in January to peak of 7.8% in July
https://www.nber.org/research/data/us-business-cycle-expansions-and-contractions
https://fred.stlouisfed.org/series/UNRATE
14. April 2022 at 17:42
Jim, I was referring to the rise from the cyclical low (5.6% in May 1979) to the cyclical high (7.8% in July 1980). But that was the smallest recession.
15. April 2022 at 00:19
” mini-recessions should be more common that larger recessions, just as small earthquakes are much more common than big earthquakes. In these models, recessions are generally caused by “shocks”. So why don’t small shocks create small recessions?”
I am not an economist, but my hypothesis would be as follows:
Fiscal and monetary authorities take measures to prevent “shocks”. Those measures are successful to “prevent” small recessions. However, they “prevent” it not by solving the underlaying problem, but pushing the problem further to the future. With time, those unsolved problems accumulate, and some time in the future a “big shock” arrives, which causes a big recession.
Plausible?
15. April 2022 at 07:45
Tamosius, Why wouldn’t they use the measures employed against small shocks against big shocks as well?
15. April 2022 at 08:03
What is the ratio of residential investment to commercial real estate investment? My recollection is that real estate is one of the sectors of the economy whose activity is most sensitive to changes in interest rates, and I would guess that automobile manufacturing is the same. But given the huge shortages in both housing and automobiles, I would think that interest rates would have to rise quite a lot before spending on automobiles and housing would deviate a material amount from their current growth path.
Which leads me to question what parts of the economy would realistically need to slow down in terms of spending (income) growth to get the economy back to its pre-pandemic trend of nominal income growth, especially given that the tool that the Fed is working with is raising the cost of capital.
15. April 2022 at 16:00
Maybe a better analogy is not earthquakes but forest fires? Putting out small fires actually causes the build up of fuel which leads to even larger, more destructive fires down the road. This is the well-known “wildfire paradox” that explains the failure of federal wildfire suppression policy from the early 20th century.
16. April 2022 at 14:13
Jeff, But why not also put out big fires? (Assuming that government is capable of putting out fires. I suspect they cannot.)
17. April 2022 at 06:15
Capability might be an issue, but isn’t the point really that once you’re dealing with those massive fires the equilibrium of the original ecosystem is pretty badly damaged? So you can either double down on fire suppression until you’re at the point of creating a kind of neo-rainforest, or you can let fires run their course and hope that something like the indigenous ecosystem regrows.
17. April 2022 at 21:17
Jeff, You might be right about forest fires, but I’m just not sure how the analogy applies to macro. You need a model of business cycles. If they are supply shocks, why aren’t small ones more common. If they are demand shocks, why aren’t small ones more common?