April, 2008
The Good Recession
Ryan Pahota
In macroeconomics, a recession is defined as a decline in a nation’s Gross Domestic Product, or negative real economic growth, for two or more successive quarters of the year. Because the United States compiles more than 1/5 of the global economy, the overshadowing recession cloud would bring down the global economy because if American Stock Market prices go down, the rest of the world follows suit. Also, if the American consumers are not “confident” in their currency, they will not demand imports from foreign countries, another strain on the global economy. Those statements give recession a negative connotation, notwithstanding the fact that there is a silver lining in the cloud of recession.
Recession is part of a business cycle as indicated here:
As we have already surmounted the “peak” of the wavelength that is our business cycle, we head toward the trough, as any wave occurs in nature. This also means that there will be a recovery, an expansion of economy, after the trough that will bolster the American economy. Much like a runner takes a break to catch his breath before running up the side of a hill, a recession a slowdown (not a complete destruction) of economy in preparation for another expansion.
According to Melissa Change, a writer for the Industry Standard blog, there are five major reasons why recession is a good thing:
- A recession forces founders to be frugal.
- Recessions force entrepreneurs to take another close look at their ideas.
- Recessions lead to committed startup teams.
- Startups get a head start.
- Recessions toughen up companies.
The first two reasons can be grouped together, that is, that recession weeds out the weak business that are not beneficial to society. It also makes business and the entrepreneurs to think about investing in a business or how a business should be run, making them more fiscally conservative with their capital. The third and fourth reasons also are grouped together. Business that want to survive through the recession must create start-up teams that are experienced enough and fiscally responsible to get a company enacting on issues now so that the corporation will be able to have a market position when the market starts back into a recovery. With the culmination of the first four reasons, the fifth reason is magnified, a trial-by-fire for a corporation responds to the adage “what doesn’t kill you only makes you stronger.” The businesses that survive the recession will be well ahead of the newcomers or the business that did not start up or plan early.
If not financially, a recession will benefit you physically. According to the USA Today and Christopher Ruhm, a recession might actually be “healthy” for you. Ruhm’s article on NBER (National Bureau of Economic Research) entitled “Healthy Living in Hard Times” concludes that “When jobs are scarce, both unemployed workers and those who keep their jobs (but perhaps with less work to do) behave in a healthier manner” (USA Today). This means that when people are scrounging around for money, they won’t eat out as much, or eat unhealthy food, and also they cannot afford to be sick and miss work (and therefore their job) thus they will traverse to the doctor’s office more. Ruhm’s data shows minute changes of people’s behaviors during a recession, conveying that an increase of 1% unemployment rate reduces smoking by .6%, obesity by .3% and physical inactivity rates by 1.8% linked to the fiscal responsibility and individuality that people must endure during a recession.
Thus, a recession is not necessarily a bad thing. It makes us more money-wise and also enhances our individualism by forcing us to relying on ourselves (not the government) to help. A recession also eliminates weak businesses, and also promises for a healthier America. Like the phoenix rising from the ashes, the American economy and populace will soar again toward the peak of expansion.