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Is there such a thing as a ‘good’ or ‘bad’ recession?

Where to find the opportunities in a recession

Now is a good time to fix parts of the economy we don't like as part of the recovery.

  • The recession might give opportunity to take meaningful action on climate change. Germany set aside one-third of its recovery plan for green investments.
  • Greening the economy will increase jobs. Redesigning city centres are very labour intensive and will employ lots of people who can learn skills.
  • One of the things the pandemic has done is exposed the inequality that exists. Recovery creates an opportunity to address inequalities. For example, New Zealand is making progress in not assuming that economic growth means everyone gets wealthier. They say it should be measured based on human wellbeing and welfare.

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Is there such a thing as a ‘good’ or ‘bad’ recession?

Is there such a thing as a ‘good’ or ‘bad’ recession?

https://www.bbc.com/future/article/20200810-is-there-such-a-thing-as-a-good-or-bad-recession

bbc.com

6

Key Ideas

Recessions come and go

  • A recession is "good" or "bad," depending on who it impacts and how badly it affects them.
  • In the last thirty years, a recession has come and gone somewhere in the world every few years.
  • Globally, economies are in recession 10-12% of the time.
  • Economic booms are just as frequent.

Recessions are far from equal

  • Banks are better able to handle a financial crisis than a decade ago. The 2008 recession was about the housing market and shares, which affected higher income groups.
  • The present crisis seems to be hitting the lower-income groups, the vulnerable workers, young, and less skilled. It is similar to the late 70s, early 80s recession, which affected young and unskilled workers.
  • Another lesson from 2008 is that recessions don't always lead to significant numbers of job losses. Layoffs were concentrated among a small number of people, and they stayed unemployed for a long time.
  • In this recession, far more workers will be at risk if social-distancing rules remain in place over a long period.

GDP during a crisis

  • A drop in GDP was expected during the 2020 lockdown. Shops and businesses were closed, and the total value produced by goods and services decreased. In turn, this affected the staff of those businesses earning less money.
  • Furloughs. At its peak, about nine million people in the UK were paid a furlough - the government paid 80% of their salaries, and the employer could choose to top up the rest. Other countries have similar state-backed furlough schemes. These schemes will be coming to an end, and employers will have to decide if they have to lay off employees permanently.
  • The losses are not yet crystalising. People are taking mortgage and credit holidays. It means the losses are pushed further down the road. The financial sector bubble will burst, and we will see real turmoil again.

Demand shock

Demand shocks occur when the demand for products drops as people stop earning money. A tactic to fix this is to stimulate the economy. In 2008, Australia gave households cash and encouraged them to spend to jumpstart the economy.

In 2020, the problem is also a lack of goods because businesses stopped working. If you give people more money, businesses will increase their prices, which will lead to a rise in inflation.

Supply shock

Supply shocks occur when people still have money to spend but cannot do so because shops are closed, or prices have shot up.

The 2020 crisis is a mix of supply and demand shocks, brought on by furloughing and temporarily preventing work in specific sectors. This makes it harder to predict how government interventions will work based on other recessions.

Where to find the opportunities in a recession

Now is a good time to fix parts of the economy we don't like as part of the recovery.

  • The recession might give opportunity to take meaningful action on climate change. Germany set aside one-third of its recovery plan for green investments.
  • Greening the economy will increase jobs. Redesigning city centres are very labour intensive and will employ lots of people who can learn skills.
  • One of the things the pandemic has done is exposed the inequality that exists. Recovery creates an opportunity to address inequalities. For example, New Zealand is making progress in not assuming that economic growth means everyone gets wealthier. They say it should be measured based on human wellbeing and welfare.

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Recessions are really "depressions," but the term "depression" seems too terrifying. After the Great Depression, economists began to use the word "recession" instead.

The 2007-09 recession involved a financial crisis, high unemployment, and falling prices, and was named the Great Recession. Our current recession is still without a name.

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